“This would also eventually lead to a number of small and medium enterprises (SMEs) closing. The decision would be a severe blow to SMEs, which are currently striving hard to stay afloat in these difficult financial times,” Al-Riyadh newspaper quoted industry sources as saying.

Industry experts said most SMEs are presently facing challenges that threaten their very survival, including acute liquidity deficits, weak lending and increases in the prices of raw materials.

They added that it is not possible for such firms to suddenly increase the prices of their products, especially considering the stiff competition they currently face in both the local and international markets.

However, Salman Al-Jashi, chairman of the Industrial Committee at the Eastern Province Chamber of Commerce and Industry, said that the hike in tariffs, which is effective from July 1, will not have any direct impact on SMEs. He, nevertheless, described the Saudi Electricity Company’s (SEC) decision to increase prices, on the recommendation of the Saudi Electricity and Cogeneration Regulatory Authority, as a wrong and unwise step.

“The Kingdom’s industrial sector has to bear an additional burden as a result of the hike in tariffs. Moreover, foreign investors are reluctant to make further investments in this vital sector,” said Al-Jashi.

Meanwhile, Abdullah Al-Sanie, deputy chairman of the Industrial Committee, said the decision to raise power tariffs will badly affect the sector. “The authority has allowed incentives to encourage the industrial sector to shift consumption loads from the peak period to off-peak periods with lower prices. But this is not practical. It is very difficult for factories to stop production during peak periods. Any halt in production and the subsequent resumption of production would cost them heavily,” he said while urging the SEC to review its decision to make huge increases in tariffs during peak periods.

Minister of Water and Electricity Abdullah Al-Hussayen announced the decision to increase power tariffs at a press conference in Riyadh on Saturday. The increase charges for government, commercial and industrial users will add more than SR3 billion to the SEC’s annual revenue. Household consumers have been exempted from the increase.

Al-Hussayen said the tariff for commercial and government sectors per kilowatt/hour will be based on three bands. In the commercial sector the tariff for the band from 1 to 4,000 kw/hour will be 12 halalas. The same band in the government sector will be charged 26 halalas. The second band from 4,001 to 8,000 kw/hour in the commercial sector will be charged 20 halalas while for the government sector it will be 26 halalas. The tariff above 8,000 kilowatt/hours will be 26 halalas for commercial and government sectors.

The minister further clarified that the tariff for industrial consumption has been divided according to months with varying levels of consumption. While consumption is higher in summer, it is lower in winter.