The Full Story Behind the Saudi Oil Derivatives “Grant” For Yemen’s Electricity

On 31st March, the KSA announced granting Yemen a $422 million worth of “ oil derivatives” to operate power stations in a number of governorates, especially Aden.

According to the official Saudi Press Agency(WAS), this grant came under direct instructions of the Saudi Crown Prince, Mohammed Bin Salman. ⁽¹⁾

In spite of the circulation of the term “grant” in the Yemeni and Saudi media outlets, which usually refers to “free gift”, this announced shipment of petroleum products is just sold at discounted price and not free. The Yemeni government has to pay its cost price as well as the shipping, transportation, and the added taxes costs, from the revenues of the beneficiary governorate.

The shipment consists of a total of 1,260,850 metric tons of fuel, including 909591 of diesel, and 351304 of mazut. 

The Yemeni government buys those tons of fuel based on the Saudi market price, while the KSA bears the world market price difference, which is estimated in total by $422 million, as part of “the Saudi Development and Reconstruction Program for Yemen”⁽²⁾.

On April 13th, the Yemeni government, represented by the Minister of Electricity, Anwar Kalshat, and the Saudi Development and Reconstruction Program for Yemen, represented by the Saudi Ambassador Mohamed Al Jaber, signed an agreement for the supply of oil derivatives shipment “to operate more than 80 Yemeni power stations”.

The agreement includes a number of articles that determine the mechanism of supplying the oil derivatives, and the mechanism of paying the discounted price by the Yemeni government.

knowledgeable sources told “South24” that the Yemeni government currently pays 180$ for one ton of oil derivatives, instead of 600$ after the KSA undertook the price difference compared with the world market price.

Days after signing the agreement, the Saudi Development and Reconstruction Program for Yemen announces a “Governance Mechanism to enhance the transparency related to the oil derivatives grant in Yemen”. ⁽³⁾

The governance measures include establishing a “joint steering committee” headed by the Yemeni Cabinet’s Secretary General, and the membership of the Saudi Development and Reconstruction Program for Yemen, the Yemeni Electricity, Finance, and Planning Ministries, the Yemeni Chambers of Commerce and Industry, the Public Electricity Corporation, the Yemen Petroleum Company, the Executive Bureau for the Acceleration of Aid Absorption and Support for Policy Reforms, a representative for civil society organizations, and the Oversight Committee.

According to the official platform of the Mechanism Governance, which was one of the mechanism measures, "the joint Steering Committee "is responsible for putting an executive program to benefit from the oil derivatives grant, reviewing the reports and statements of the Oversight Committee, moving its remarks and recommendations to the Supreme Economic Council, and coordinating with different parties to implement their obligations under the grant agreement".

Moreover, the mechanism also includes the formation of "Operative Committee", to oversee and monitor distributing the grant, headed by a Yemeni engineer, including electricity experts who work in a number of governorates. This comes in addition to signing a contract with the 3rd party inspection company, Saybolt, “which monitors all phases of fuel flow, from arriving at the Aden Airport until being delivered to its final beneficiary, and to prepare daily stock reports for each station actress the governorates concerned”.

The governance mechanism came, according to observers, as a result of Saudi fears of “corruption and plunder” which targeted previous Saudi deposits for the Yemeni Central Bank, and similar previous price-discounted oil shipments.

On May 8, the first batch of Saudi oil shipment arrived at the port of Aden, with a total of 53000 tons of diesel fuel and 24000 tons of mazut.

On June 4, the second batch arrived, with a total of 70000 tons of diesel fuel and 40000 tons of mazut. The third batch arrived on July 25. With a total of 75000 tons of diesel and 40000 tons of mazut, the total amount of oil derivatives reached 302000 metric tons, and 958000 tons remain. ⁽⁴⁾

According to the “Steering Committee” the list of governorates benefiting from batches of the fuel shipment include Aden, Hadhramaut, Shabwa, Lahij, Abyan, and Al Mahra. However, the General Coordinator of the local Authority in Aden, Fahd A Khulaifi, in an exclusive interview with "South24", questioned the validity of the percentages reported by the committee, and said that "the share of Aden Governorate from these batches amounted to only 48%, while the Steering Committee estimstes it by about 61%."

He noted that such a percentage “is not limited to Aden only, as everyone knows that these stations supply the neighbouring governorates such as Dhale, Lahij and Abyan”.

Hadhramaut is at the second place with a 25% share, while the remaining percentage is being distributed among the remaining governorates, according to the “Steering Committee”.

Because the third batch of oil shipment had run out more than two weeks before the arrival of the fourth batch in Mid September, Aden has witnessed a severe electricity crisis, which hit the generating capacity of most governmental diesel-powered stations. According to a media official in the electricity sector, more than 80% of the governmental stations depend on diesel, while others rely on mazut.

Thursday, the power was off for more than 14 hours, compared to less than a 1.5 hour of power on, amid an unprecedented heat wave in the governorate, with a possible increase in the expected hours of outage.

The local authority in Aden made attempts to provide Urgent supplies of diesel to save the situation, which resulted in the injection of about 2500 tonnes, before reaching the state of full fuel depletion. The government’s pledges to pay for 10000 tons of diesel have not convinced the Aden traders to lend some of their storages until the arrival of the fourth batch, according to sources who spoke to “South24”.

Mohammed Al Junidi, the Secretary of Aden’s Governor, said that 2000 tons of diesel will be injected today from refineries to Yemen Petroleum Company stores, in preparation for supplying generation stations.

The running out of the third batch raised several questions about the reasons behind that, amid mutual accusations between the “Steering Committee” and the local authority in Aden, after a Committee’s statement, published by the Yemeni government- affiliated news agency (Saba) which blamed the local authority and citizens in Aden for the delay of the fourth batch’s arrival, adding that “the locals’ failure to pay their power bills and supplying revenues to the joint financial account as well as the random linkage are the reasons behind this delay. ⁽⁵⁾

In statements published by the Aden-based newspaper “Al Ayyam”, an official source in the local authority of Aden accused the “Steering Committee” of “failure”, adding that “there has been delay in the arrival of the Saudi oil derivatives grant batches since announcement. The Coordinating Committee is directly responsible for such a delayment. As for the residents’ lack of commitment to pay, and the random linkage, we did not see or hear about any meetings of the members of the committees”. ⁽⁶⁾  

In response to the “Steering Committee”, General Coordinator of the local Authority in Aden, Fahd A Khulaifi told “South24” that “ there is indeed flaws the collection of electricity revenues in all the liberated governorates, especially since there is a joint account in which all surplus electricity revenues after deducting maintenance expenses and workers’ salaries are placed.”

He pointed out that they consider making a reasonable increase in the price of electricity referring to the “wide gap” between the original price per kilowatt, estimated at 170-200 Yemeni riyals, and the price at which the government sells to citizens, which is estimated at only 7 riyals.

Article 4 of the Agreement calls for “the development of a one year executive program to ensure self-sufficiency to secure oil derivatives for power plants, and setting the necessary measures to enhance the collection of electric power sales revenues.” ⁽⁷⁾

The oil shipment is supposed to secure the electricity needs of Aden and the aforementioned governorates for a year, which is the period specified for making treatments and taking measures that would reach self-sufficiency in the electricity sector, by raising the collection rate by obligating citizens to pay bills, and reducing waste and randomness, which is one of the tasks of the Coordination Committee, which it has not done it so far.

As for the depletion of the third batch’s storages, the media official of Aden Electricity, Nawar Abkar, told “South24,” that there are several reasons behind that, including “the delay in supplying the price of oil derivatives batches by the government, as each batch must supply its reduced value 35 days before its request, according to Article 3 of the Supply Agreement.

Abkar pointed out that this problem "also confronted us in the second batch."

Al Khulaifi stressed that the delay in the arrival of the fourth batch of the Saudi oil derivatives grant is due to “the delay of the competent authorities in the Yemeni government in completing the financial transaction for each payment,” ruling out that the “brothers” in the KSA “played any role in this.”

 In its statement, the steering Committee indicated that "the total government’s payments in the previous three batches and the fourth batch of the oil derivatives grant amounted to 52844517 dollars," noting that " Shabwa is the most committed governorate regarding payments". ⁽⁸⁾

In his comment on this matter, Al Khulaifi said: "the comparison between Shabwa and Aden is wrong, because the electricity generated in Shabwa does not exceed 18 megawatts which is tens of times less than that of Aden, and even Hadhramaut and Al Mahra."

The Yemeni Cabinet issued a “directive” to the local authorities in the governorates “to abide by the terms of the grant included in the agreement signed with the brothers in the Kingdom, to secure maintaining its continuity”. Some observers see this as a kind of escaping from responsibility and throwing it to the local authorities, as well as a threat to stop the incoming batches of the oil shipment. ⁽⁹⁾

On Monday, the Yemeni Prime Minister, Maeen AbdulMalik chaired a meeting, via video conference, with the participation of the Ministers of Finance and Electricity, the Governors of Aden, Hahramaut, Al Mahra and Lahij, the Saudi Program for the Development and Reconstruction of Yemen, and the Steering Committee, "to discuss and evaluate the progress of the Saudi oil derivatives grant for power stations in Yemen, and to what extent there is to implement the terms of th agreement”. ⁽¹⁰⁾

The electricity sector in Aden suffers several crises along with the fuel supplies, prominent of which is the problem of the hired power stations, as the Yemeni Government does not pay its dues in time, pushing them to stop their generating capacity. The neighbouring Lahij has witnessed a full power outage for more than a week. Similarly, the outrage rate in Abyan reaches 10 hours for an hour per day, while the operating hours in Al Dhale do not exceed 4 hours per day, at best.

As for Shabwa, and in spite of its smaller needs for electricity in comparison with Aden and Hadhramaut, it still suffers from power outages which often last over half a day. The deteriorating situation of electricity services in Hadhramaut stirs waves of popular anger over the previous weeks.

Although the two governorates are rich in oil, the status of the services is still deteriorating, compared with the neighbouring governorate of Marib, which enjoys power stability most times, as a result of the allocation of its oil revenues for meeting the internal needs, including electricity supplies.

It seems that the electricity sector in the Southern governorates, especially Aden and its neighbours won’t witness an imminent improvement, especially regarding fuel savings. With consuming about a quarter of the Saudi oil shipment so far, and with the lack of progress in the self-sufficiency plan, the darkness will certainly continue to overwhelm the governorates, which were  liberated from the Houthi control more than 6 years ago, unless there will be strategic drastic solutions.

Some residents blame the Yemeni government, the STC, the KSA and its Reconstruction Program for their suffering caused by the power outrage and the lack of real long-term treatment to put an end to the problem. Others accuse parties inside the “legitimacy “of exploiting the file of electricity, oil and service in Aden for political reprisals, at the expense of people, to pressure the STC which calls for the independence of the South.