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Electricity subsidy soars in Oman

Total subsidy in 2012 amounted to $717mn

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Financial support to the MIS utilities is projected to rise by 29 per cent in 2013
Financial support to the MIS utilities is projected to rise by 29 per cent in 2013

 Financial support provided by the government in the form of subsidy to Oman's electricity sector amounted to US $717mn in 2012, the Authority for Electricity Regulation, Oman, has stated in a newly released report.

If computed on the basis of the international cost of fuel - natural gas in the case of power plants serving the Main Interconnected System (MIS) and the Salalah System, and distillate with regard to diesel power stations serving rural areas - then the actual 'direct and indirect' benefit derived by customers from the subsidy balloons to a staggering US $2.3bn, according to the regulator.

The Ministry of Finance provides electricity subsidy calculated by the Authority to the four licensed utilities - Muscat Electricity (MEDC), Majan Electricity, Mazoon Electricity, and Rural Areas Electricity Company (RAEC) - on a yearly basis. Consumers typically derive 'direct' and 'indirect' benefits from the subsidy. The financial support provide by the government is a 'direct' subsidy, reflecting the financial cost of natural gas of $1.5 per million British Thermal Units (mmBTu) and an average diesel fuel cost of US $0.35 per litre. But the subsidy amount, according to the regulator, will be exponentially higher if the fuel costs were to reflect the economic 'opportunity' cost.

Consequently, consumers derive an 'indirect' benefit as well, because the cost of fuel sold to power stations is below its economic 'opportunity' costs, typically as high as US $9 per mmBTu of natural gas, and US $0.742 per litre of diesel at existing international market prices. Of the total financial subsidy of US $717mn disbursed by the government in 2012, the lion's share of US $477mn went to the three distribution and supply utilities serving the Main Interconnected System (MIS) in the northern half of the country.

Financial support to the MIS utilities is projected to rise by 29 per cent in 2013.

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