Home About ECRA History Reform and Restructuring of the Electricity Sector

Reform and Restructuring of the Electricity Sector

The demand for electricity in the Kingdom had grown from a peak of 300 MW in (1970) to 16,900 MW in (1995) . The rapidly burgeoning population, economic growth, and the low tariff possible due to a generous government subsidy have fueled this increase. To avoid deterioration of services, high costs, and an ultimately unsustainable outcome, the government moved to restructure the electricity sector.

In 1995 a systematic reevaluation of the electricity sector took place resulting in a decision by the Government to restructure the sector in keeping with the following major guiding principles:

• Ensure quality services at affordable cost
• Due consideration to be given to low income families, and the industrial and agricultural sectors
• Increase tariff of prodigal consumption to encourage demand side management
  " Withdrawal of government subsidies
• Enabling and encouraging private sector participation and investments in the development of the electricity and co-generation industries.
• Formation of a sound and effective regulatory framework

As part of this restructuring process, the government adopted measures towards reforming the electricity sector and establishment of a new regulatory framework consistent with its vision. These measures were implemented through the following decisions.

• Council of Ministers Decision (CMD) 169 dated 11/8/1419AH (30 November 1998) dealt with the reorganization and restructuring of the electricity sector. It decreed the merger of the four regional SCECOs as well as the ten companies and projects of the General Electricity Corporation into a single joint stock company, known as the Saudi Electricity Company(SEC). SEC was actually formed in April 2002. The decision established the principle that electricity prices must reflect the economic costs of providing the electricity services, and that the electricity industry must depend for its survival and growth on the income it generates without resort to government subsidies. A tariff based on this principle was included as a part of the decision. The resolution also stipulated that an independent electricity regulatory authority be established to review the cost of electricity and the electricity tariff.
  

• CMD 170 dated 12/7/1421AH (10 October 2000) dealt with the electricity tariff adopted in CMD 169 by reducing the costs for certain brackets of consumption.
  

• Supreme Economic Council Decision 11/22 dated 26/8/1422H (12 November 2001) detailing the structure and responsibilities of the independent regulatory authority which later came to be known as the Saudi Electricity Regulatory Authority (SERA).
  

• CMD 236 dated 27/8/1422AH (13 November 2001) approving the formation of the Saudi Electricity Regulatory Authority (SERA) and delineating its responsibilities.
  

• CMD 163 dated 17/5/1425AH (5 July 2004) assigning to the Regulatory Authority the additional responsibility of regulating the co-generation products of electricity, desalinated water, and steam. Accordingly, the authority's name was revised to be the Electricity & Co-generation Regulatory Authority (ECRA).

These decisions were in line with a wave of privatizations of government owned organizations involved in such areas as railroads, airlines, energy, communications and mining that took place in many countries around the world in the 80's and 90's. This movement was driven by the realization that state run organizations were by and large inefficient monopolies, not sufficiently market driven, and with costs/subsidies escalating in unsustainable ways.