Saudi Arabia has initiated sweeping reforms across its utility sector. This will eventually see more public-private partnerships emerge to take on next round of needed projects and investments. Image Credit: Gulf News Archive

Dubai: All of Saudi Electricity Company's liabilities related to the government is being converted into equity. But the new equity will be "non-dilutive", in that it will not directly impact SEC's existing shareholders' stakes.

The switch - done by transforming the net liabilities into a 'perpetual deeply subordinated equity-like instrument' - comes as part of recently approved reforms in the Saudi utility sector. The government was represented by the Ministry of Finance in this transaction.

“With the signing of the agreement and the implementation of the approved reforms, in addition to the cancelling of the government fees imposed on the company, SEC will be better able to fulfill its obligations and satisfy its dues which will in turn enhance its financial position," said Dr. Khaled bin Saleh Al Sultan, Chairman of SEC.

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New ways to set estimates

As part of the reforms, the regulator, Electricity and Cogeneration Regulatory Authority (ECRA), will adopt a new mechanism to determine SEC’s required revenue. The required revenue will ensure that SEC is able to cover its cost to provide service and "achieve a fair return on invested capital".

This mechanism will be effective as of January 1. (The government will continue to cover the difference between the required revenue and SEC’s actual revenue through the balancing account.)

"The agreement and reforms will further improve SEC’s ability to fund projects and enable the company to execute on its strategy to contribute to the development of a stronger, more sustainable, and diverse electricity sector," the Chairman added. "It will also enable SEC to distribute dividends to all of its shareholders.”

The reforms will help the sector and SEC overcome several financial and structural challenges faced in the past, and will ultimately improve the quality of service to consumers

- Dr. Khaled bin Saleh Al Sultan of Saudi Electricity Company