The lights continued to flicker at Saudi Electricity Company (SEC), a publicly traded state utility that has lost 13 per cent of its value in the past four weeks. Operating losses at SEC widened to 782 million riyals in the first quarter from 771m riyals in the same period the year before, the company reported on Tuesday. The company normally registers a loss in the first quarter but makes it back in summer when demand increases.
But it is not the first-quarter numbers that are worrying some investors; it is other underlying issues. SEC is responsible for the largest power grid in the Arab world and has forecast that it will need to increase capacity by more than 25 per cent in five years to keep up with soaring consumption. Increased consumption makes for a good business, but the SEC has been unable to keep up with the growth. It attributed the first-quarter loss to the increased cost of buying electricity from other suppliers.
In 2008, Saudi officials talked of splitting the SEC into four parts and opening the sector to full competition by 2013. That deadline does not appear to be firm. SEC officials made no mention of privatisation at a major power conference in Abu Dhabi last month. Nomura Securities, the Japanese investment bank, downgraded its rating on the stock to "reduce" this month on the lack of information available on the company's efforts to receive approval to raise tariffs and privatise.
"Our investment case for SEC was based on the view that the company will be restructured into four generation businesses with a subsequent increase in tariffs to promote investment and improve efficiencies," the Nomura analysts wrote. "While we still believe this will take place, it now seems likely that execution will be over a longer time frame." Analysts had hoped the Saudi power companies would get the tariff increase of 20 per cent for industrial customers that was recommended by the Shura Council, but it now appears government regulators are unlikely to approve the increase.