Domestic power tariffs vary little across the Middle East and North Africa. Customers in the countries examined by MEED are charged an average $0.029 a kilowatt hour (kWh), indicating heavily subsidised services.

Kuwait charges the lowest rate - households pay $0.007 a kWh. In Syria, customers pay about $0.006 a kWh for the first 100 kWh, but prices increase - albeit at low levels - up to $0.057 for electricity consumption of more than 600 kWh a month. At the upper end of the Gulf price range, Dubai charges $0.054 a kWh, followed by Sharjah and Abu Dhabi, which apply tariffs of $0.046 and $0.041 a KWh, respectively, at any consumption level.

The subsidised tariff rates have been a key factor behind losses for a number of regional electricity companies. Analysts have frequently stressed that subsidies will need to end, as energy tariffs should reflect - more or less - the actual cost of generating and distributing electricity.

The cost of producing a kWh varies, depending on the age and the size of the power plant, the type of fuel being used and even the time of year - as the ambient air temperature affects generation cost. Says one Gulf power official: 'Production costs here range from $0.019-0.030 a kWh. That is at source. You still have the T&D [transmission and distribution] costs on top, which add 15-20 per cent.'

The problem facing utilities is not confined to the fact that tariffs are generally below the cost of generating and delivering electricity to people's homes. In much of the Gulf, national consumers consider power provision as part of the welfare state and as a result do not pay anything for power usage. So utilities rely heavily on expatriate residents for revenues. 'If one looks at the figures, then the gap between the production and delivery cost and the tariff is not that great. Yes, there is still a subsidy, but it is not that large,' says the power official. 'The problem is that the non-payment skews the subsidy issue. If 50-60 per cent of the population does not pay, the subsidy becomes enormous.'

Dubai is in a privileged position when it comes to payment of electricity bills. With expatriates accounting for an estimated 80 per cent of its customer base, Dubai Electricity & Water Authority (DEWA) cannot only charge a relatively high tariff, it can also rely on a healthy revenue stream. The upshot is that DEWA is reckoned to be the only utility in the Gulf to make a profit. The situation helps to explain why the participation of private developers has been ruled out in the emirate's power sector.

The non-payment of electricity is a major issue outside the Gulf, too. In Lebanon for example, an estimated 54 per cent of all electricity generated is not paid for. Of the total, 26 per cent comes from technical losses due to poor transmission; the remaining 28 per cent stems from economic losses in which power is either unbilled or not paid for.

Recent history has shown that low tariffs are not necessarily an impediment to privatisation in the Middle East. In most instances where some privatisation has taken place, the independent power project has sold the electricity produced directly to the state-owned transmission company rather than to the consumer. Under such an arrangement, the subsidy can be maintained by the government, which then sells the electricity onto the end-user. The model effectively means that governments can sidestep the highly sensitive issue of tariff increases, which invariably produce an immediate reaction from the streets. The irony is, however, that if a reasonable tariff was applied and revenue collection improved, the need for new generating capacity from private developers would not be as pressing as it currently is.

Oliver Klaus