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Tariffs, again

Tariff reform is a top priority in the Middle East power sector

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Utilities in the region are rapidly building up their generation capacity. Higher tariffs would ease demand pressures.
Utilities in the region are rapidly building up their generation capacity. Higher tariffs would ease demand pressures.

One of the surprising things when talking to the region’s utility heads is the frankness with which they urge a change in government policy. Over the past couple of months, I had opportunity to quiz a host of these power players on the issue of tariffs.

For this month’s cover story, I met Dr. Abdulmajeed Ali Alawadhi, Bahrain’s EWA’s chief executive officer. “If you ask me, I’d say definitely, tariffs have to be changed,” he told me. “Eighty percent of a conservation programme is tariff. Hit the pocket, and everything will go well.”

Unfortunately, changing prices is not in his remit, so conservation will have to take a back seat in Bahrain for now.

A couple of month’s back I intercepted Ali Saleh Al Barrak, the head of the Saudi Electricity Company (SEC) at a conference in smart electricity in Dubai. “We are requesting for higher tariffs in general to meet the increase in the cost of production,” he freely admitted.

Industrial and commercial users already pay variable tariffs, which encourage the use of power outside peak hours, by increasing at various times of day. But so far, households are subject to highly subsidised rates for electricity and water.

To pave the way for such a measure for the retail consumer, the SEC has initiated pilot projects for smart meters, installing the devices in districts of various towns. The plan is to eventually roll out smart meters across the Kingdom. Does this forestall variable tariffs for households, I asked the CEO?

“Exactly,” he replied.

Speaking a month before higher tariffs for electricity and water were announced in Dubai, Dewa’s CEO Saeed Mohammed was a little more cagey about the issue. But while he declined to comment on future tariff changes, he was happy to expand on the authority’s smart metering pilot project.

10,000 smart meters are being installed across the emirate, and will be commissioned early |in 2011.

Will this lead to a change in the tariff structure, I asked. “No. It is good to have a time based meter in order to give incentives,” he answered prophetically.

In December, Dubai’s Supreme Council of Energy announced a rise in utility bills for expats of around 15 percent, starting from January, to reflect the price of energy on the international markets.

The measure fails to address the issue of Emirati wastefulness, and heavily watered lawns will remain a feature of Dubai’s ice-cooled suburbia for the time being.

But by increasing tariffs for households, Dubai is the first to curb consumption by ‘hitting the pockets’. The cash –strapped, energy - poor emirate is acting out of necessity, adding weight to the idea that financial incentives are the best way to encourage frugality.

Abu Dhabi has refrained from raising tariffs, and is hoping to persuade consumers to reduce wasteful use by publishing the actual cost of power and water next to subsidised rates on utility bills. But for once, Dubai has (inadvertently) stolen a march on its progressive neighbour. 

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