Kingdom of Saudi Arabia

The Challenge

As the regulator responsible for the electricity sector in the Kingdom of Saudi Arabia, the Electricity and Cogeneration Regulatory Authority (ECRA) is responsible for periodically reviewing the tariff structures and underlying costs for SEC. To enable more thorough monitoring of SEC’s business plans and expenditure ECRA wanted to establish an annual review to inform the principal tariff review every five to seven years. IPA’s task was to undertake the first audit and establish processes and procedures for subsequent audits.

Our Solution

To initiate these annual reviews of SEC’s expenditures, IPA focused on three main elements; operating expenditure (Opex), capital expenditure (Capex), and outsourced work. For all three elements IPA interviewed SEC’s senior management to inform our review.

The audit of SEC’s Opex included:

  • Reviewing internal expenditure, including power and fuel purchases;
  • Comparing unit costs between years and across different regions in the Kingdom;
  • identifying discrepancies between forecast and registered expenses;
  • Assessing processes against best practice and evaluating management control of such expenses, for generation, transmission and distribution; and
  • Benchmarking a selection of costs to compare SEC’s opex to regional and international norms, for generation, transmission and distribution, as well as head office expenses.

The Capex audit addressed similar issues to Opex with a focus on cost and delivery performance across the programmes. While the audit of work outsourced by SEC focused on the scale and effectiveness of these activities.

IPA produced processes and policies for future reviews to be carried out by ECRA staff, including timetables to monitor agreed actions and undertake subsequent audits. We also provided training to ensure the framework was effectively implemented.