Approval of industrial licenses for the renewable energy and power plants sector in KSA has been saved
Approval of industrial licenses for the renewable energy and power plants sector in KSA
31 March 2022 - On 10 March 2022, the Saudi Ministry of Energy (MoE) in conjunction with the Ministry of Industry, Mineral Resources (MIMR), and the non-oil Revenue Development Center announced the introduction of a landmark initiative (the initiative) that allows entities operating in the renewable energy and power plants sector to apply for and obtain industrial licenses for their activities in the Kingdom of Saudi Arabia (KSA).
Previously, renewable energy and power plants producing companies were excluded from the list of qualifying projects/companies that could apply for an industrial license. However, following the announcement of this initiative, power plants and renewable energy sector companies are now eligible to apply for an industrial license. This is a significant move and will welcome further development for businesses operating in the energy sector in Saudi Arabia.
The five key objectives from this initiative that were communicated by the MoE are listed below:
- Supporting economic growth and achieving the ambitious vision of the Kingdom.
- Enhancing the Kingdom's capabilities and its ambitious plans to become a regional center for renewable energy.
- Supporting the renewable energy industry to develop technical fields relating to renewable energy.
- Achieving an optimal energy mix for electricity production.
- Benefiting from the facilities and incentives of industrial licenses, which include import duty exemption.
Industrial exemption and customs duty implications
The Gulf Cooperation Council (GCC) states, including KSA, grant industrial projects with certain benefits and facilities. This is with the aim to promote the industrial sector and attract new investments. This is administered under the scope of the “GCC Common Industrial Law and its Rules of Implementation (the Industrial Law)”.
One of the key benefits of the Industrial law is granting customs duty exemptions for manufacturing and industrial projects. This exemption focuses on the import of industrial inputs such as: machinery and equipment, raw materials, and spare parts in addition to semi-manufactured materials and packing materials required for immediate industrial production.
Further, it is important to note that the Industrial Law defines an industrial project as follows: involving the transformation of raw materials into manufactured, semi-manufactured, or transforming semi-manufactured products into fully manufactured products.
A big win for the KSA energy sector
The announcement by the MoE will further incentivize players in the KSA energy sector. This is expected to enhance investments in conventional electricity production and increase the adoption, implementation, and production of renewable energy.
Moreover, we note that the announcement is aligned with the Saudi Green Initiative which aims to maximize the renewable energy utilization in the Kingdom, amongst other objectives. It may also aid in establishing KSA as the leader in the production and exportation of power in the Middle East.
What can businesses expect?
An increase in investment activities is anticipated for companies within the energy sector because of the announcement. Affected companies must now re-evaluate their KSA operations and target applications for an industrial license. The Industrial License application can be accessed by clicking on the following link.
This will ensure that the eligible energy sector companies reap the benefits and incentives granted to industrial projects. For instance, efficient utilization of incentives will reduce the cost of investment due to the exemption from payment of import duties.