Regulator to have full autonomy

26 October 2001

The formation of a new regulatory body for the power sector will be announced before the end of November, industry sources in Riyadh say. It is understood that the regulator will be a fully autonomous entity, with its own legal status and financial independence, and will be empowered to propose tariff adjustments. The final word on tariffs will rest with the council of ministers, the sources say.

The regulatory authority will have a 12-member board, chaired by the minister of industry & electricity. Seven of the board's members will represent government departments. The remaining five will be individuals, with no government affiliation. The task of running the authority will be entrusted to a governor.

The regulator will be responsible for reviewing costs and tariffs across the industry, and for ensuring that the interests of all parties - producers, transporters, distributors, consumers and investors - are safeguarded. Analysts say this is an important departure from the point of view of prospective private investors, as the emphasis in the past has been on protecting the interests of consumers.

The creation of the regulator is an essential element in the reform of the power sector that was launched at the end of 1998 and has resulted in the formation of the Saudi Electricity Company (SEC). A masterplan for the next stages in the reform programme has been drawn up by a team of consultants led by Arthur D Littleof the US (MEED 26:10:01).

The regulator will also have the power to issue licences for new projects, and will set and monitor standards to be met by licensees. The proceeds of the licences will be one of the principal sources of funding for the regulator. It will also secure funds in the form of remuneration for services provided to companies working in the sector, and from penalties levied from companies for failing to adhere to rules and standards.

The regulator will be empowered to supervise and observe the activities of service providers - generators, transmission companies and distributors - so as to ensure compliance with standards.

The regulator will compile regular reports, to be submitted to the council of ministers, on tariffs and costs. The new body will have the power to review tariffs, but any changes will have to be ordered by the council of ministers. The regulator will also have the power to suggest to the council of ministers penalties to be applied to companies found to be violating rules and standards.

All electricity service providers will be required to adhere to standard accounting procedures, to allow for clear and consistent analysis of costs and tariffs. The regulator will be entitled to hire consultants and other specialists to support its work.

All of the employees of the regulatory body, other than the governor, will be covered by the general labour laws. This will allow for more flexibility in deciding pay and conditions, and should enable the regulator to hire highly qualified staff from the private sector, analysts say. The governor will be covered by the civil service code.

The formation of the regulator has been eagerly awaited, as it will clarify the conditions for investment in this strategic sector of the economy. The international oil companies drawing up financial models for their investment in the Saudi gas initiative are planning to invest heavily in new power stations, and specialist power developers have been looking forward to participating in new projects to be launched by SEC.

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