Strategic Partners

How well prepared is Majan and the electricity sector for privatization?

The electricity sector in Oman is working to achieve and exceed targets as the regulations require. In the past few years, we have been responding to the electricity demand, and there have been significant improvements in terms of cost and delivery efficiency, as well as in customer service, where we have introduced improved modes of payment. Demand for electricity in Oman has been growing by 6-7% annually since the electricity sector’s restructuring in 2004. Regulations have helped the sector perform efficiently and benchmark its performance with global benchmarks. The government is moving toward making a significant change in the market, allowing and positioning the private sector to assume a bigger role. This is within the framework and direction of the government’s strategy. Privatization can take several different forms—through a strategic investor or IPOs. Electricity companies are ready in terms of their function and structure, and the transparency of their reporting and accounting. Overall, the sector is mature and well-structured enough to attract private-sector investment.

What advantages come with strategic partners, as well as with public offerings?

Strategic partners, regional or international, from a similar industry can bring values and improve efficiencies to gain knowledge. But having a strategic partner does not limit electricity companies from moving to a public offering—this is part of the privatization model. Depending on the market’s reaction, a company can opt for an IPO straight away if the strategic partners are not showing interest and taking a significant stake. The group has undertaken a lot of studies, due diligence, and consultation to reach the level we have seen in recent times. Moving forward, we will continue to consult with stakeholders to make the best decisions in the market.

How well prepared is Oman’s distribution system to accommodate further growth?

The sector is publishing a seven-year statement that covers overall demand growth and projection. Based on that, OPWP consults with different authorities, and there will be consultations between the regulator and public authority for electricity and water. A comprehensive plan is being developed across the sector, and each company in the sector, whether related to transmission or distribution, will coordinate to meet the targeted demand. The regulator is the body reviewing and approving these plans to ensure that availability of electricity and security of supply are met without any disturbance or shortfalls.

How have cost-reflective tariffs helped ease the load on the distribution system?

Majan is mandated to serve Dhahirah, Buraimi, and the north Batinah region, which is home to the biggest industrial hub in Oman. The purpose of cost-reflective tariffs is to change the way electricity is used. So far, there has been a positive reaction from the customers, and there are no major difficulties between Majan and its customers. We have seen customers change operating modes of their plants to avoid the peak demand during summer, while others have managed to level their demand across the year and avoid periods with peak demand. The cost-reflective tariff is not just one tariff, but varies according to different seasons and hours of the day. The other side of the cost-reflective tariff is reducing the subsidy, and we have witnessed good results by reducing the subsidy for industrial customers.

What was the biggest challenge in implementing the CRT?

It was communicating with and advising customers about the cost-reflective tariff. To that end, there was an exercise before the implementation by the regulator that positioned us in a positive way. The driver at the beginning was AER because the body took initiatives and lead in communicating the government’s decision. At the same time, it spent a considerable amount of time with distribution companies to educate them about the cost-reflective tariff, and distribution companies continued the campaign accordingly.