PRIVATISATION

The government of Saudi Arabia has announced that it intends to sell a majority stake in the electricity sector after merging the regional electricity companies into a single company called the Saudi Electricity Company (SEC). According to economists the state’s stake in the sector, currently standing at around 85 per cent will be cut to 20 per cent.

Ten regional companies will be merged to create SEC. The company will have a capitalization of around $6.3 billion. Under the merger plan, tariffs for small consumers will initially remain at their present, subsidised level while large consumers will pay more after the restructuring.

However the loss-making regional companies are likely to require state subsidy for one or two years after the sale. Electricity has traditionally been subsidized in Saudi Arabia. After that SEC could become profitable.

Saudi Arabia has been struggling to keep pace with demand for electricity. A study in 1995 concluded that an annual growth in capacity of 4.5 per cent was needed. Current capacity is 21 000 MWe.

However the country has suffered from the recent drop in oil prices. This has hampered the state’s ability to fund the power sector. It now sees the private sector as a way of making the electricity industry viable