Power to the people, and industry

With Oman’s industrial base increasing rapidly, energy hungry projects coming on line, and tourist numbers expected to double in the coming decade, the Sultanate’s electricity sector is going to be under pressure to perform, writes Jason J. Nash

Oman’s electricity sector, both state and private, is racing to meet surging demand fuelled by increasing industrialisation, strong growth in commercial services, an expanding population and a burgeoning tourism sector.

On August 13, a report by Oman’s Authority for Electricity Regulation (AER), the sector’s watchdog established in 2004, said the Sultanate’s power requirements would grow by 9 per cent a year between now and 2013. This predicted increase in demand is more than three times the international average, with global requirements expected to rise by around 3 per cent annually over the next decade.

According to the AER’s annual report for 2006, issued in the beginning of September, so far Oman’s electricity sector is winning the race. Last year saw a 10.3 per cent increase in supply compared to the output in 2005, with 10.5 terra-watt hours (TWh) delivered through the grid in 2006, up on 9.5 TWh delivered the year before. Offsetting this, around 18,000 new customers were added last year, an increase of 3.4 per cent, the report said.

Recognising that electricity generation and supply is at the core of the country’s drive to diversify its economy and spread the Sultanate’s industrial base away from around Muscat, the government has moved to bolster management of the sector.

Only days after the AER issued its annual report, Sultan Qaboos announced a major shake up of the cabinet and the setting up of a number of new agencies and ministries. The September 9 reshuffle had a direct impact on the electricity sector, with a royal decree establishing the Public Authority for Electricity and Water, to be headed up by Mohammed bin Abdullah bin Mohammed al Mahrouqi. Previously, utilities had come under the Ministry of Housing, Electricity and Water, but the overhaul of roles and responsibilities saw these two functions stripped away from the ministry, which has been left with the sole task of overseeing the Sultanate’s housing issues.

The new authority will be given the job of conducting all state-related business with the sector and will have all the funding and assets formerly held by the ministry transferred to it. Though another decree will have to be issued to set out the system of the authority and management of its affairs, one of the tasks the new body will have is to work with the industry to cut losses and increase income.

Closing the demand gap
One area where officials have seen the opportunity to help close the gap between supply and demand is targeting losses through transmission or from the unregistered use of electricity, which between them have reduced the amount of power available and payments that could be channelled back as investments in the sector.

In its annual report, the AER said that while there had been a significant increase in the amount of electricity delivered, electricity losses remained high, specially in the north of the country and in Muscat itself.

According to the AER, 22 per cent of the electricity entering the Main Interconnected System (MIS) was lost in 2006. Though this was slightly down from 23.9 per cent lost the previous year, with savings of US $6.9million, it still represented a massive drain on the Sultanate’s resources.

The situation was not as dire in the Sultanate’s rural and remote regions, which are served by the Rural Areas Electricity Company SAOC. Away from built up areas, losses in 2006 were just 12 per cent, down marginally from 12.3 per cent that leaked away in 2005.

This was somewhat offset by an increase in losses in the Dhofar Governorate, which is served by the Salalah Power System, with 18 per cent of generated power in the increasingly industrialised region being lost, up 3 per cent from 2005.

While the rise in output in 2006 was able to keep pace with increasing demand, further investments in generating capacity are needed. However, the level of funding could be reduced if losses through the grid, illegal siphoning off of power and poor metering practices were rectified.

Oman has been a regional leader in privatising its utilities, with much of the country’s electricity generating, transmission and distribution capacity now operated by private firms, usually in partnership with the state. Though these partnerships have proved highly successful in terms of increasing output and investment, the firms have been told in no uncertain way by the AER to lift their game with regard to reducing losses.

“While some degree of technical losses is unavoidable, non-technical losses are a source of inefficiency that increase total supply costs and electricity subsidy,” it said in its report. “The authority hopes these problems will be addressed when the existing contracts are replaced with new and more appropriate contracts.”

Among the planned remedies identified by AER, stemming from consultations with supply and distribution companies, are modernising electricity meters, enacting a system of fines for clients found to have tampered with their meters or who are illegally draining off power from the grid, and employing skilled meter readers.

A higher level of maintenance of distribution lines and other technical upgrades was also called for to further reduce losses.

The AER has set the objective of reducing losses by half within five years, announcing it will include loss reduction targets in its new distribution and supply price controls programme as of the beginning of next year. If these targets are met, Oman’s electricity companies will be benefit from higher returns and from state assistance. If not, the companies and the Oman economy may both suffer.

Enlarging the grid
Oman is also looking beyond its borders to solve its electricity problems. The government was an early supporter of the Gulf Co-operation Council (GCC) Grid, a multi-national project which when completed in 2010 will link the electricity network of Oman with those of Saudi Arabia, Qatar, Bahrain, Kuwait, and the UAE.

The aim of the US$7 billion project is to reduce the need for reserve capacity and to boost supply security against outages by interconnecting the transmission and generation capabilities of the GCC member states.

Oman’s push to improve electricity supply and production was hindered by Cyclone Gonu, which swept across the Sultanate in early June, leaving a trail of devastation and death in its wake and causing an estimated US$2.5 billion damage to the country’s infrastructure, including the electricity network.

Damaging to both the economy and the power grid Gonu may have been, but it also served to reinforce the need for worst-case scenario planning, with new infrastructure projects having even higher standards set for them.

Oman has a number of new power stations either under construction or in the planning stage. Most of these have an associated desalination plant, with the joint facilities intended to meet two of the country’s most pressing needs. Other power stations, such as that at Dhofar, are being upgraded to increase capacity and reliability.

However, with Oman’s industrial base increasing rapidly, many energy hungry projects coming on line, and tourist numbers expected to double in the coming decade, the Sultanate’s electricity sector is going to be under pressure to perform.

Oman’s power sector had a good year in 2006, now it needs another decade of similar performance in order to ensure that the bright lights of the country’s economy don’t flicker.


 

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