Saudi Electricity will raise tariffs for government, commercial and industrial users as of July 1, which would add SR3.2 billion ($853.3 million) to its annual revenues and boost its profitability.

This is the latest gesture from the government to help its state-controlled power utility cope with power demand growing at an annual eight per cent and requiring investments close to $80 billion in the ten years to 2018.

The move will raise by 9.6 per cent the average price of electricity sold to non-household users but it would still remain 3.5 per cent below its actual production cost in the world's top oil exporter, Abdullah al-Shehry, governor of the Electricity and Co-generation Regulatory Authority, told reporters on Saturday.

'Based on current global fuel price, the production cost of electricity is 0.372 riyals per killowatt per hour (kwh), while these new increases will raise the average tariff for all users to 0.137 riyals up from 0.125 riyals previously,' Shehri said.

Ali Saleh al-Barrak, Saudi Electricity chief executive, said he expects the firm's revenues to add about 1.6 billion riyals in the second half of 2010 as a result of the increase. 'It will have a very good impact on profitability,' Barrak told Reuters.

'Revenues from electricity sales are not enough to cover operating costs and at the same time fund the investments required by the growth in demand,' Barrak added.

Water and Electricity Minister Abdullah al-Husayen said the annual growth in power demand meant the need to add 3,000 megawatts to the power generation capacity each year, which currently stands at 40,900 MW.

'This (3,000 megawatts) is huge by all standards. Over the 2009-2018 period, the growth in power demand will require 300 billion riyals in investments,' Husayen said.

For the industrial sector, which accounts for 18 per cent of the power consumption, the price of electricity will increase by between 0.0125 and 0.02 riyals for one kilowatt per hour, depending on the size of the plants and the seasons.

Saudi Electricity expects to earn 1.04 billion riyals each year from the rise in industrial electricity tariffs but the increase in electricity tariffs for the government will earn it 1.4 billion riyals, Husayen said.

'The electricity bill accounts for 1 per cent of the overall production cost for 90 per cent of industrial firms. This shows that the government continues to bear the burden for other sectors in the economy,' he said.

The government granted the cash-strapped firm a 15 billion riyal soft loan in April to support its finances. Households account for 53 per cent of power consumption in the desert kingdom and much of it is used for air-conditioning.-Reuters