Saudi Electricity Company announces the receipt of a resolution of the Ministerial Committee that resolves all legacy liabilities by approving a final settlement of SAR 5.687 billion and reclassifying it into the Mudaraba Instrument, thereby reinforcing the company’s capitalization and enhancing its capital structure

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Announcement Detail	In reference to the announcement made by Saudi Electricity Company (SEC) on the Saudi Stock Exchange (Tadawul) on 16/11/2020 regarding the approval of financial and regulatory reforms for the electricity sector, including the reclassification of its financial government liabilities, SEC announces the receipt of a letter dated 31-01-2025 corresponding to 01-08-1446HD from HRH, Minster of Energy notifies that a resolution issued by the Ministerial Committee for the Restructuring of the Electricity Sector and SEC (the Ministerial Committee) which approves a final settlement of legacy disputed amounts related to technical discrepancies in quantities, prices and handling costs of fuel and electric power. A working group representing Ministry of Energy, Ministry of Finance, and the Saudi Electricity Regulatory Authority, in coordination with other concerned parties, studied the disputed transactions, which amounted to a total of SAR 10.3 billion. Independent technical and legal consultants were engaged to assess the disputes and present findings and recommendations to the respected Ministerial Committee. As a result, the Ministerial Committee issued its resolution stating that, first) approving a final settlement of the disputed amounts, amounting to only SAR 5.687 billion as a liability owed by SEC to the government, represented by the Ministry of Finance (the Settlement Liability), second) to add this Settlement Liability amount into the Mudaraba instrument in accordance to the terms and conditions of Mudaraba agreement signed between SEC and the government represented by Ministry of Finance and within 30 days from the date of receiving the letter from HRH the Minister of Energy. In accordance with the above resolution, SEC will complete the necessary procedures in due course. SEC will recognize the Settlement Liability mentioned above and sign an amendment to the Mudaraba agreement signed with the government, represented by the Ministry of Finance, to reclassify the Settlement Liability of SAR 5.687 billion into the Mudaraba instrument. This will increase the total amount of the Mudaraba instrument to SAR 173.607 billion. The financial impact of this settlement is expected to be reflected in the 2024 financial statements. The Mudaraba instrument is a subordinate, unsecured perpetual financial equity-like instrument, redeemable, and bearing an annual profit margin linked to the regulatory weighted average cost of capital (WACC). The profit is payable if it is decided to distribute dividends on ordinary shares. This instrument complies with Islamic Sharia principles, is classified as equity in SEC financials, and does not affect the ownership percentage or rights of the company’s shareholders. SEC expects that there will be no material impact on its dividend distribution. This Ministerial Committee’s decision has resolved all legacy 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, fulfilling its role as a leading integrated electricity service provider in the Kingdom with high reliability and efficiency. This decision reflects the continued support of the Custodian of the Two Holy Mosques’ government to the electricity sector, aimed at improving service levels for citizens and residents across the Kingdom in line with Saudi Vision 2030 objectives.

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Explanation

Announcement Detail

In reference to the announcement made by Saudi Electricity Company (SEC) on the Saudi Stock Exchange (Tadawul) on 16/11/2020 regarding the approval of financial and regulatory reforms for the electricity sector, including the reclassification of its financial government liabilities, SEC announces the receipt of a letter dated 31-01-2025 corresponding to 01-08-1446HD from HRH, Minster of Energy notifies that a resolution issued by the Ministerial Committee for the Restructuring of the Electricity Sector and SEC (the Ministerial Committee) which approves a final settlement of legacy disputed amounts related to technical discrepancies in quantities, prices and handling costs of fuel and electric power.

A working group representing Ministry of Energy, Ministry of Finance, and the Saudi Electricity Regulatory Authority, in coordination with other concerned parties, studied the disputed transactions, which amounted to a total of SAR 10.3 billion. Independent technical and legal consultants were engaged to assess the disputes and present findings and recommendations to the respected Ministerial Committee. As a result, the Ministerial Committee issued its resolution stating that, first) approving a final settlement of the disputed amounts, amounting to only SAR 5.687 billion as a liability owed by SEC to the government, represented by the Ministry of Finance (the Settlement Liability), second) to add this Settlement Liability amount into the Mudaraba instrument in accordance to the terms and conditions of Mudaraba agreement signed between SEC and the government represented by Ministry of Finance and within 30 days from the date of receiving the letter from HRH the Minister of Energy.

In accordance with the above resolution, SEC will complete the necessary procedures in due course. SEC will recognize the Settlement Liability mentioned above and sign an amendment to the Mudaraba agreement signed with the government, represented by the Ministry of Finance, to reclassify the Settlement Liability of SAR 5.687 billion into the Mudaraba instrument. This will increase the total amount of the Mudaraba instrument to SAR 173.607 billion. The financial impact of this settlement is expected to be reflected in the 2024 financial statements.

The Mudaraba instrument is a subordinate, unsecured perpetual financial equity-like instrument, redeemable, and bearing an annual profit margin linked to the regulatory weighted average cost of capital (WACC). The profit is payable if it is decided to distribute dividends on ordinary shares. This instrument complies with Islamic Sharia principles, is classified as equity in SEC financials, and does not affect the ownership percentage or rights of the company’s shareholders. SEC expects that there will be no material impact on its dividend distribution.

This Ministerial Committee’s decision has resolved all legacy 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, fulfilling its role as a leading integrated electricity service provider in the Kingdom with high reliability and efficiency. This decision reflects the continued support of the Custodian of the Two Holy Mosques’ government to the electricity sector, aimed at improving service levels for citizens and residents across the Kingdom in line with Saudi Vision 2030 objectives.