Oman boosts utilities investment to meet demand growth

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Government plans to increase the country’s generation capacity and upgrade its transmission network look set to spur further growth in Oman’s utilities sector, against a backdrop of subsidy rationalisation.

A state-led initiative aims to boost generation capacity in remote areas in a bid to meet growing demand, the Rural Areas Electricity Company (RAEC) announced in early March.

The OR153m ($397.4m) three-year investment plan will make use of both conventional power stations and renewable energy resources to increase connectivity and supply, while also expanding the country’s electrical infrastructure, including transmission lines, distribution networks and substations.

Slated for completion in 2016, four new power plants in Masirah, Thumrait, Khasab and Mazuna will add a combined 200 MW to generation capacity.

Demand for power

Much of the increasing demand for utilities is being driven by the country’s industrial sector and expanding population, with the latter forecast to reach 6.6m by 2040. Demand for power, meanwhile, is projected to grow by 10% per annum to 5 GW by 2020.

Investment in additional capacity has been needed to ensure demand is met. In 2014 capital investments in the sector rose by 27% year-on-year (y-o-y), with OR221m ($574m) spent on development projects, according to the RAEC.

Output from Oman’s power stations rose by 12.6% in 2015 as production topped 32,700 GWh, according to a report released by the National Centre for Statistics and Information in March. This represents an increase from the 10% y-o-y rise recorded in 2014.

Tariff regime overhaul

Similar to many other GCC countries, Oman is looking to narrow the gap between production costs and tariffs levied on consumers.

In early March the Authority for Electricity Regulation (AER), the state agency that oversees the power sector, proposed a shift in pricing that could reduce the amount spent on subsidies.

The proposal would increase rates for commercial, industrial and government clients using more than 150 MWh per year. With up to 9500 clients falling in this category, the AER estimates savings of between 7% and 8% on the subsidies bill, which totalled OR450m ($1.7bn) in 2015.

The proposal is part of a wider programme of tariff increases aimed at boosting returns on state services and basic commodities. Authorities are also moving to rationalise water subsidies, with the Public Authority for Water and Electricity announcing plans in mid-March to raise fees by 16.6% to state, commercial and industrial entities.

Promoting change in usage

Reforms to the tariff regime are not only aimed at reducing subsidies, but could also be used as an incentive to change usage patterns.

Growing demand for electricity in the industrial sector has spurred plans by authorities to introduce cost-reflective tariffs, which could lead to lowered fees for non-peak usage.

Such a move should ease strain on the grid, according to Qais Saud Al Zakwani, executive director of the AER.

“The current flat tariff does not incentivise consumers to efficiently manage the use of their electricity,” he told OBG last year. “On the contrary, the impact of their consumption on the grid becomes magnified during peak times.”

If approved by the government, cost-reflective tariffs would first be applied to government and commercial clients before residential consumers, Al Zakwani said.

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