PR86691

RIYADH, Saudi Arabia, Nov. 18, 2020 /PRNewswire=KYODO JBN/ --

-  Sweeping changes will ensure long-term sustainability of the electricity sector

-  Expected outcomes include more efficient power generation, increased

reliability of service, reduction in the use of liquid fuels for electricity

generation, and creating a more financially viable and sustainable sector

A press conference was held on Monday 16th November 2020, organized by Saudi

Arabia's Ministry of Energy, to announce sweeping electricity sector reforms

that will ensure the long-term health and sustainability of the electricity

sector and the achievements of the Kingdom's goal under Vision 2030.

Photo - https://mma.prnewswire.com/media/1336998/Table_1.jpg

These reforms are considered a crucial steppingstone in achieving the Ministry

of Energy goals for the electricity sector which are in line with the goals of

Vision 2030, and include the following:

    -- Transition to the optimal energy mix for electricity production in the

       Kingdom, with shift to renewable energy and efficient natural gas

       sources; and

    -- Increase system efficiency and the reduced use of liquid fuels for

       energy production; and

     -- Increase the sector's Transmission and Distribution network security

       and reliability to enable effective integration of renewable energy

       and interconnection with neighboring countries; and

    -- Greater environmental compliance to reduce the sector's carbon footprint

The comprehensive reform package of measures includes the establishment of a

revenue requirement mechanism for sector service providers and a tariff

balancing account to compensate for the difference between the efficient cost

to serve and the income from tariffs.

His Royal Highness Prince Abdulaziz bin Salman bin Abdulaziz Al Saud, Minister

of Energy, Saudi Arabia, said:

"This announcement is a major achievement for Saudi Vision 2030 and for the

Ministry of Energy's ambitious goals for creating a sustainable, reliable, and

diverse power sector. The reforms are considered the largest and most extensive

on a global scale. These reforms lay critical foundations by helping to create

a more solid and financially viable sector attracting the required investments.

The expected outcomes of this sweeping reform program include more efficient

power generation, reduction in the use of liquid fuels for electricity

generation and increased environmental protection.

"Moreover, the reforms aim to increase the reliability and quality of service

of the Kingdom's electricity transmission network and to facilitate the

production of electricity from renewable energy sources, bringing it in line

with the Kingdom's optimal energy mix for electricity production."

His Excellency Dr. Khaled bin Saleh Al Sultan, Chairman of Saudi Electricity Co., said:

"With this historic comprehensive reform program, SEC's balance sheet will

become more robust enhancing SEC's ability to fund projects and enabling it to

execute on its strategy to contribute to the development of a stronger, more

sustainable, and diverse electricity sector."

For Saudi Electricity Co. specifically the reforms mark the entry of the

Company into a regulatory framework with clear rights and obligations. In

return the Company will have the right to receive a fair rate of return of 6%

(WACC) on its regulated asset base and fully recover its efficient

cost-to-serve as determined by the regulator, Electricity and Cogeneration

Regulatory Authority (ECRA). Importantly the Company will operate under a

predictable, transparent, and stable regulatory framework with clear arm's

length commercial relations amongst sector players and participants. The

reforms also include the cancellation of government fees the Company had been

paying and the reconciliation of the Company's net legacy Government

liabilities, and the restructuring of its balance sheet.

HSBC, financial advisor to Saudi Electricity Co., commented:

"The creation of this financial instrument and the introduction of an

international standard regulatory framework should enable Saudi Electricity Co.

to maintain a more sustainable capital structure. Through the Balancing

Account, the Government is expected to continue supporting the sector and Saudi

Electricity Co. on a more structured and transparent basis.

"These reforms will help improve the sector's efficiency while providing a fair

rate of return on invested capital. Furthermore, the restructuring also

supports a key policy objective of a safe, secure and reliable power sector

that is financially sustainable and able to invest in projects that could

enhance consumer service and improve reliability. Overall, these announcements

are expected to create an attractive environment for investment in the

electricity sector and contribute to the economic development of Saudi Arabia,

in line with the Vision 2030 program."

The magnitude of the reform is a momentous landmark on multiple fronts, it is the:

    -- Largest Islamic financial transaction to be executed globally with

       issuance of a $45 billion Mudaraba instrument (interest of 4.5%) by

       Saudi Electricity Co. and the single largest conversion to a non-

       dilutive equity-like instrument from debt.

    -- SEC will have the largest regulated asset base of any utility in the

       MENA region and will have a regulated asset base which in comparable

       to the largest utility companies in G20 countries.

    -- The immediate deleveraging of the USD 128 billion balance sheet of

       Saudi Electricity Co. from a debt-to-equity-ratio of 2.2 to a ratio of

       0.6, in line with what is generally considered to be healthy debt

       levels for a utility company of its scale.

Strategy&, a global strategy consulting business and part of the PwC network,

and advisors to the Ministry of Energy for the restructuring of the electricity

sector, added:

"This demonstrates how the reforms hit the reset button on the legacy of

decades of ad-hoc methods of addressing the financial challenges of the

electricity sector, and put in place a robust, transparent, and stable

regulatory framework that will ensure the financial sustainability and health

of Saudi Electricity Co. and their ability to meet all their commercial

obligations including fuel payment, debt service, and dividends. It also

provides Saudi Electricity Co., the 8th largest utility globally by asset size,

the financial strength to raise the funds necessary to invest in strengthening

the electricity grid, enhancing the network security and reliability.

"The power system in the Kingdom could not achieve its ambitions without a

fundamental redefinition of the sector's financial foundation and operating

model. At this important juncture, however, the expectations from the Saudi

Arabian power sector are much higher than ever before. The reforms have created

important instruments for achieving the policymaker's objectives for modernizing

and transforming the utility sector as part of the Kingdom's Vision 2030."

Notes to editors:

Forward-looking statements are based upon reasonable assumptions, there can be

no assurance that forward-looking statements will prove to be accurate, as

actual results and future events could differ materially from those anticipated

in such statements. HSBC undertakes no obligation to update forward-looking

statements if circumstances or management's estimates or opinions should change

except as required by applicable securities regulations. HSBC acted as

financial advisor to SEC.

Issued on behalf of the Ministry of Energy, Saudi Arabia.

SOURCE  Ministry of Energy

CONTACT: Mr. Mohammed Al-Khodair, mohammed.khodair@moenergy.gov.sa, 00966 (0) 11 478 7777