Moody’s says Qatar could hike electricity tariff
March 22 2016 08:52 PM
Electric Meter
In Qatar, the average tariff for the residential and commercial connections are 2.3 cents per kWh and 3 cents per kWh respectively

By Santhosh V. Perumal/Business Reporter

Qatar could increase the electricity tariff by 81% and 40% for residential and commercial connections respectively to reflect the actual cost per kilowatt hour (kWh), according to global credit rating agency Moody's.

In Qatar, the average tariff for the residential and commercial connections are 2.3 cents per kWh and 3 cents per kWh respectively while cost is 4.2 cents per kWh, Moody's said in a report.

As part of subsidy reforms in Qatar, a slab tariff system was introduced in October 2015 with the highest electricity and water usage tariff almost 120% and 130% higher than prior period respectively, it said, adding that Doha had also hiked fuel price by 30% to QR1.3 per litre in January this year.

"Qatar and Oman have the highest tariff subsidies for residential electricity consumers," Moody's said, suggesting broader subsidy reforms in the Gulf Cooperation Council (GCC).

The credit implications are "neutral" in the short term for power and water generators that operate under unbundled systems, such as Qatar Electricity and Water Company as it will not directly benefit from tariff increases.

This is because they have stable operating cash flow streams that are derived from secure, long-term purchase agreements with a sole off-taker. In the case of QEWC with Qatar General Electricity and Water Corporation (Kahramaa) for power and water, it added.

In Oman, the electricity tariff has to be more than doubled with average tariff amounting to 4.1 cents per kWh, while cost is 8.4 cents per kWh.

In Saudi Arabia, the estimated tariff increase required for cost reflective level is 11% as average tariff is 3.7 cents per kWh and cost at 4.1 cents per kWh.

In Abu Dhabi, electricity tariffs have to be increased 10% and 102% for residential and commercial connections respectively as the tariffs are 8.1 cents and 4.4 cents per kWh against the cost of 8.9 cents per kWh.

Dubai has the lowest subsidies in the electricity sector as s average tariffs and costs are 8.6 cents per kWh.

Finding that the GCC governments are reforming subsidies, including for electricity and water; Moody's expects this to continue as they seek to bolster government finances dented by the downturn in global oil prices, which are unlikely to shift "significantly" in 2016 from their early 2016 levels with Brent crude expected to average $33 per barrel in 2016 and $38 in 2017.

"Although rated state-controlled GCC utilities could face some short-term risks, we view these reforms and other changes they are likely to spur as a long-term credit positive for the sector overall," it said.

The low oil price environment is adding momentum to existing efforts that are likely to improve the GGC utilities' standalone credit quality over time, it said, adding these include improvements in operating efficiencies, which along with the tariff hikes, could lead to a rationalisation of power consumption in the region and enable companies to enhance their capital expenditure planning.

"We also expect to see greater participation by the private sector in the electricity industry across the GCC," it said, adding while independent power producers and independent water and power projects represent an important share of generation in Oman, Abu Dhabi and Qatar, they currently play a minor role in Saudi Arabia, the region's largest electricity market where they have less than 20% of total power generation, and in Dubai.

However, GCC utilities -- which will remain of "strategic" importance to governments in the region -- could face some short-term risks; Moody's said the current macro-environment in the GCC could potentially lead to utilities facing higher funding costs in the future if bank lending were to become constrained.

"The need for GCC governments to balance their accounts could prompt unfavourable policy or regulatory changes that affect the utilities sector, although we think this is unlikely at this stage," it added.



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