SEC says final settlements for liabilities approved at SAR 5.68B

Saudi Electricity Co. (SEC) headquarters

Saudi Electricity Co. (SEC) said that the Ministerial Committee for Restructuring the Electricity Sector approved a final settlement for the legally disputed amounts related to technical discrepancies in fuel and electricity quantities, prices, and handling costs.

A work team representing the Ministry of Energy, the Ministry of Finance, and the Saudi Electricity Regulatory Authority, in coordination with other concerned parties, studied the disputed transactions worth SAR 10.3 billion, according to a Tadawul statement.

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Independent technical and legal consultants were also engaged to assess the disputes.

As a result, the Ministerial Committee approved a final settlement of SAR 5.68 billion in disputable liabilities owed by SEC to the Ministry of Finance.

In addition, the committee decided to convert the liability settlement amount into a Mudaraba instrument, in accordance with the terms and conditions of the Mudaraba agreement signed between SEC and the Ministry of Finance within 30 days from Jan. 31.

SEC will complete the necessary procedures in due course. It will also recognize the settlement amount and sign an addendum to the Mudaraba agreement signed with the Ministry of Finance, to reclassify the settlement amount into the Mudaraba instrument. Accordingly, the total amount of the Mudaraba instrument will reach SAR 173.60 billion.

The relevant impact of this settlement is expected to materialize in 2024 financial statements.

The Mudaraba instrument is a subordinate, unsecured, perpetual, financial equity-like, redeemable instrument, bearing an annual profit margin linked to the regulatory weighted average cost of capital.

The profit is payable if SEC decides to distribute dividends on ordinary shares. This Shariah-compliant instrument is classified as equity in SEC financials. It does not affect the ownership percentage or rights of the company’s shareholders.

SEC expects no material impact from this settlement on its dividend distribution.

The Ministerial Committee’s decision resolved all liabilities on the company. Additionally, reclassifying the settlement amount into the Mudaraba instrument strengthens the company’s capital structure and supports its readiness to execute its large-scale investment plans. It also helps the company fulfill its role as a leading integrated electricity service provider in the Kingdom with high reliability and efficiency, according to Acting CEO Khalid Al-Ghamdi.

The decision reflects King Salman's continued support for the electricity sector to improve service levels for citizens and residents across the Kingdom, in line with Vision 2030 objectives.

In November 2020, SEC announced the approval of financial and regulatory reforms from the energy sector, including settling the financial liabilities owed to the government, according to data available with Argaam.