Fines of 20 million riyals... Saudi Arabia regulates the energy supply sector

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In a significant regulatory step aimed at strengthening governance and oversight of the vital energy sector, the Saudi Ministry of Energy has adopted a new detailed regulation to address violations of the energy supply system. This regulation includes deterrent financial penalties of up to 20 million riyals for violations classified as "serious." The regulation is designed to ensure full compliance with approved regulations and standards, and to achieve the highest levels of safety and sustainability in the management of petroleum and gas resources.

An organizational framework that aligns with Vision 2030

These stringent regulatory measures fall within the broader framework of achieving the goals of Saudi Vision 2030, which seeks to diversify the national economy and enhance the efficiency of all sectors, including the energy sector. By developing a robust legislative infrastructure, the Kingdom aims to strengthen the sector's attractiveness to both domestic and foreign investment, ensure the continuity of energy security, protect the environment and public health, and solidify its position as a trusted global energy leader. This regulation serves as a key implementation tool for achieving these objectives by establishing clear standards for operational practices and holding violators accountable.

Classification of violations and penalties

The regulations classified violations into two main categories to ensure that the penalty is proportionate to the potential harm:

1. Serious violations

These are those that directly and significantly impact the environment, public health, the safety of facilities, or the sustainability of energy supplies. Fines for large facilities can reach 20 million riyals. Examples include:

Engaging in any activity related to natural gas and its liquids without obtaining a license.
Disposing of the energy allocation document to a third party without the Ministry's approval.
Negligence or dereliction of duty that results in injuries, deaths, or fires.
Providing false information or data to the ministry with the aim of misleading.
Preventing or obstructing inspectors from performing their duties of monitoring and inspection.
The licensee's failure to obtain the necessary insurance to conduct the activity.
Failure to report any incident immediately or to investigate it properly.

2. Minor offenses

This category pertains to breaches of operational and procedural obligations that do not directly affect the safety of operations, but touch upon important regulatory and supervisory aspects. These include violations such as:

Failure to submit the required periodic documents or reports to the ministry on time.
Delay in supplying beneficiaries with gas on the agreed dates.
Failure to comply with technical standards and requirements in the design or operation of facilities.
Modifying production capacity without obtaining prior approval from the ministry.
The lack of clear emergency plans or the absence of mechanisms for responding to emergencies.
The payment of the annual fee was delayed beyond the agreed time.

Importance and expected impact

This regulation is expected to have multiple positive impacts both domestically and internationally. Domestically, it will encourage companies operating in the energy supply sector to adopt global best practices in safety, security, and environmental protection, thereby reducing operational risks and ensuring market stability. Internationally, this step will enhance the Kingdom's reputation as a responsible energy producer and exporter, and increase the confidence of investors and international partners in the transparency and integrity of the Saudi energy sector's regulatory environment.

Implementation mechanism and right of appeal

The regulations grant the relevant department within the ministry broad powers to address violations, including conducting regular and surprise inspections, investigating reports, and documenting violations using modern technology. The ministry emphasizes the principle of compliance, whereby violating establishments are officially notified and given a corrective period (usually 30 days) to rectify the violation before a final penalty is imposed. The regulations also guarantee establishments the right to appeal the decision issued against them to the minister or their designee within 60 days of being notified, thus striking a balance between enforcing discipline and ensuring fairness.