Oman to phase out water and electricity subsidies in five years

Oman Sunday 20/December/2020 18:27 PM
Oman to phase out water and electricity subsidies in five years

Muscat: Oman will phase out water and electricity subsidies starting from January 2021 until 2025.

Dr. Mohammed bin Hamad Al Rumhy, Chairman of the Board of Directors of Authority for Public Services Regulation (APSR), issued decisions announcing the Cost-Reflective Tariffs (CRT) Regulation and the Permitted Tariffs Regulation for connection and supply of electricity and amending some provisions of the drinking water supply tariffs.

These decisions come as part of an initiative to reorient electricity and water subsidy, which is one of the initiatives of the Fiscal Balance Plan (2020-2024) that seeks to lay grounds for the Sultanate’s financial sustainability and upgrade the efficiency of government spending and the social security system.

Through this plan, segments of subscribers will be categorised, endorse tariffs structure, reinforce the social security system and reorient subsidy to beneficiaries in the electricity and water sectors.

New tariffs will be applied for electricity and water services gradually over the forthcoming years till the stage of non-subsidised tariffs that tally with the economic cost of electricity supply by 2025.

The new tariffs structure includes Large Consumers Category (or all segments of subscribers, except the Residential Category) among those who consume 100 megawatts/hour and more. The CRT applies to all subscribers of this category.

In the non-residential category, all segments of subscribers (industrial, commercial, government and tourism segments) are merged in a single tariff in which the Winter Tariff is set at 21 baisas per kilowatt and the Summer Tariff is set at 29 baisas per kilowatt. The tariff of agricultural and fisheries activities will continue to be applied as a special tariff for these two sectors, so that 12 baisas is set for consumption ranging from 0-3,000 kw/h, 16 baisas for consumption ranging from 3,001-6,000kw/h and 24 baisas for more than 6,000 kw/h consumption.

The Residential Category of consumers is divided into “Omani Residential Account Tariff” and “Non-Omani Account Tariff and Additional Residential Account Tariff”.

The Omani Account will apply to citizens (a maximum of two accounts per citizen) and it will be charged 15 baisas for consumption from zero to 2,000 k/h, 20 baisas for 2,001-4000k/h and 30 baisas for 4,000 k/h or more of consumption.

The Non-Omani and Additional Residential Account applies to non-Omani names and additional accounts of not more than two per citizen. This will be charged 20 baisas for consumption from zero to 500 k/h, 25 baisas for501-1,500 consumption and 30 baisas for more than 1,500 k/h of consumption.

The new tariff for Non-residential Category of consumers covers all non-residential uses and these are charged 4.5 baisas per one gallon and 990 baisas per one cubic metre. The Residential Category of consumers is divided into two segments: the “Omani Account” and the “Non-Omani and Additional Accounts” segment.

The Citizen Water Account applies to Omani citizens at rate of not more than two accounts per citizen. This will be charged 2.5 baisas per gallon, 550 baisas per cubic metre. The Non-Omani and Additional Accounts will be charged 3 baisas per gallon and 660 baisas per cubic metre.

To ensure that the subsidy will reach the beneficiaries, the government developed the National Subsidy System (NSS), which subsidises fuel, electricity and water consumption of eligible segments of citizens who are more vulnerable to financial impacts of the State’s Budget.
The NSS provides direct social protection to citizens. It constitutes 33 percent of the bill within limited consumption of 4,000 k/h a month for electricity while for water a similar mechanism will apply over the next stages.

The electricity and water sector witnessed considerable growth over the past decades, generating investments in the two sectors that crossed OMR8 billion.

Electricity accounts grew by 141 percent while the volume of supply increased by 253 percent. In the meantime, water accounts saw a growth of more than 187 percent while total water supply increased by more than 180 percent from 2010 to 2019.

As per the current method, the electricity and water subsidy is provided to all electricity consumers in the Sultanate, irrespective of the living standard of citizens. The subsidy also covers non-residential categories (like industrial, government and electricity segments and others).

Electricity residential tariff in the Sultanate has not changed since 1987, which entailed an annual growth of subsidy that grew from OMR650 million in 2016 to OMR750 million by 2020, constituting 5 percent of the State Budget and about 20 percent of the expected deficit during 2021. If the government does not undertake any action about the subsidy, it may grow to OMR900 million by 2025.