Dynamic Productivity Changes in Oman's Power Generation

What is it about?

This paper examines the dynamics of productivity and efficiency changes in the generation segment of the Omani Electricity Supply Industry. Special attention is made to capturing COVID-19 impact on such performance measures. We adopted the output-oriented DEA-like Malmquist Index approach, which decomposes the variations in total factor productivity into efficiency and technological changes over time. Data for twelve electricity firms are collected from all three regions of Oman's electric power system. These comprise firms listed in Oman's Stock Exchange Market, including more than 60% of the total generation in the Sultanate. Out of four models developed in this study, the predominant results reveal that COVID-19 hurt the industry's overall performance in 2020 but rapidly recovered in 2021. The decomposition of the collective TFP index of the sample firms confirms that the fall in TFP in 2020 is caused by both a fall in average efficiency scores and an inward shift in the estimated best practice frontier. These are likely outcomes of the recessionary impacts of the Pandemic. While average efficiency scores continue to drop, an outward shift in the frontier helps a fast recovery in 2021. Such an outward shift in the frontiers—we content—has its roots in appropriate technological upgrades (at least in some units owned by the sample firms) starting from 2018/2019 onward, far before the Pandemic. Al Kamal, Sembcorp Salalah, SMN Power, and Musandam Power have consistently been on the year-to-year best practice frontiers. Sembcorp Salalah and Musandam Power continually show the most remarkable performances over time, demonstrating a technological breakthrough while being on the best practice frontiers.

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Photo by Mihály Köles on Unsplash

Photo by Mihály Köles on Unsplash

Why is it important?

Understanding the dynamics of the Electricity Sector Industry's (ESI) performance or its components is immensely important for policy-making and strategic development in every country, including Oman. A reliable and affordable electricity supply is an integral component of the Sultanate's strategic development. Oman's fast-growing electricity demand requires adequate infrastructure investments. Consequently, ensuring the efficient performance of ESI is identified as one of the core objectives of the Authority for Public Services Regulation (APSR). Alongside other objectives, this objective is one of the prime goals of ASPR after the release of Vision 2040, recently launched by the Omani government, which sets out a clear and transparent strategy for national transformation and modernisation of the country.

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