The Saudi Electricity Company (SEC) stands at a pivotal juncture in its history, as it embarks on a transformative journey to strengthen its financial structure and align with the Kingdom of Saudi Arabia's ambitious Vision 2030. This blog post explores the recent developments involving SEC's significant settlement of historically disputed financial obligations, the strategic implications of converting these obligations into a Mudaraba Instrument, and the broader impact on Saudi Arabia's energy sector.
Resolving Historical Disputes and Financial Obligations
The Saudi Electricity Company (SEC) has recently received approval from the Ministerial Committee for the Restructuring of the Electricity Sector and SEC (the Ministerial Committee) to settle its historically disputed financial obligations. These disputes, amounting to SAR 10.3 billion, revolved around technical discrepancies in quantities, prices, and handling costs of fuel and electric power. To address these issues, a dedicated task force, including representatives from the Ministry of Energy, the Ministry of Finance, and the Saudi Electricity Regulatory Authority, conducted a comprehensive study. Their meticulous efforts culminated in a resolution approving a final settlement amount of SAR 5.687 billion.
This decision marks a significant milestone for SEC, as it successfully resolves longstanding financial disputes. The approved settlement will be recognized as a liability obligation from SEC to the government, represented by the Ministry of Finance. The resolution underscores the collaborative efforts of various stakeholders and the importance of transparency and accountability in the energy sector. By addressing these historical obligations, SEC is poised to strengthen its financial standing and enhance its ability to execute large-scale investment plans.
The Strategic Move to Mudaraba Instrument
Following the resolution, the Ministerial Committee decided to convert the financial obligation into a Mudaraba Instrument in accordance with the terms of the Mudaraba Agreement signed between SEC and the Ministry of Finance. This conversion, set to be completed within 30 days from January 31, 2025, reflects a strategic move by SEC to integrate this settlement into its financial framework. The Mudaraba Instrument, with a total value of SAR 173.607 billion, is a subordinated, unsecured, perpetual, and redeemable financial instrument that aligns with Shariah principles.
The financial impact of this settlement is expected to be recognized in SEC’s 2024 financial statements, with no material effect anticipated on shareholder dividend distributions. The Mudaraba Instrument's annual profit margin is linked to the weighted average regulatory rate of return on capital costs, ensuring that profit distributions are made only when dividends are declared for common shareholders. This strategic move enhances SEC's capital structure, ensuring that it remains robust and resilient in the face of evolving market dynamics.
Aligning with Vision 2030 and Sustainable Energy Transition
Eng. Khalid Al-Ghamdi, Acting CEO of Saudi Electricity Company, emphasized that the decision to settle historical financial obligations aligns with the financial reforms announced on November 16, 2020. This step enhances SEC's financial position, enabling it to support large-scale investment plans and align with the government's strategic role in the energy sector. SEC remains committed to developing Saudi Arabia's electrical infrastructure, integrating renewable energy plants, and deploying battery storage solutions to improve capacity and reliability.
SEC's efforts are in line with Saudi Arabia's Vision 2030, which aims to diversify the energy mix and ensure sustainable growth. The company is dedicated to advancing a diverse energy portfolio to meet the rising demand for electricity, reflecting the robust economic growth of the Kingdom. By prioritizing renewable energy and sustainable practices, SEC is poised to play a pivotal role in Saudi Arabia's energy transition, ensuring that its substantial investments keep pace with global energy advancements.
Commitment to Local Content and Workforce Localization
Al-Ghamdi reiterated SEC’s commitment to supporting the Kingdom’s sustainable energy transition and emphasized the company's ongoing efforts to boost local content and workforce localization. By reinforcing its role in strengthening the national economy, SEC contributes to creating long-term value for its shareholders and the broader community. The company's mission is to provide comprehensive, high-quality electricity services across the Kingdom while driving sustainable growth.
The unwavering support from the Custodian of the Two Holy Mosques for the electricity sector ensures the delivery of enhanced services to citizens and residents across the Kingdom. This decision aligns with the goals of Vision 2030, fostering a thriving economy and a vibrant society. SEC's strategic initiatives, coupled with its commitment to sustainability and innovation, position it as a key player in shaping the future of Saudi Arabia's energy landscape.
The Saudi Electricity Company's strategic settlement and alignment with Vision 2030 underscore its commitment to financial resilience and sustainable growth. By resolving historical financial obligations and embracing innovative financial instruments, SEC is poised to lead the energy transition in Saudi Arabia. As the Kingdom embarks on a path of economic diversification and sustainable development, SEC's efforts will play a pivotal role in ensuring a reliable and sustainable energy future for generations to come.
