By Dr. Yahya Anouti, Dr. Shihab Elborai, and Dr. Raed Kombargi
Utilities throughout the GCC are experiencing a dual shock from the COVID-19 epidemic and the steep decline in oil prices. That has led to cascading consequences in areas ranging from operations to supply chains to finance. The impact has been sudden and severe, and utilities need to be smart about how they react, to ensure that they not only manage the most-urgent implications of the crisis but position themselves to emerge stronger.
Because of the stay-home orders, most demand for power has shifted from industrial users to residential users, which use less energy and pay lower tariffs. (Recent data from Italy shows that demand has declined by about 15 percent as a result of many industries being shut down.) Energy grids have been affected by the changing demand patterns, and supply chains have been disrupted. On the financial front, utilities face higher days sales outstanding, which reduces working capital, along with the spike in bond yields for emerging markets. And organizations face greater customer scrutiny in areas such as service assurance and billing.
The ultimate impact on utilities will depend on a range of factors, including the length and intensity of the epidemic, the global economic recovery, and oil market dynamics, and government stimulus packages. However, utilities can still shape their future by taking concerted and simultaneous actions on three horizons.
Between the COVID-19 crisis and the drop-off in oil prices, the present operating environment for utilities is extremely challenging — but the future need not be. By taking the right steps to respond, on all three horizons at the same time, utilities can ensure they continue to play a crucial part of the GCC’s future economic growth.
This article originally appeared in April 2020 on Utilities Middle East.