For many years, electricity and water subsidies reached everyone in the same way: services were priced below cost, benefiting everyone who consumed them, regardless of income or how much they used. Today, the Kingdom is taking a new step to change this arrangement by raising tariffs on the one hand and providing direct cash support on the other.

What has happened?

The Kingdom has approved increases to electricity and water tariffs starting at the beginning of next year, alongside monthly cash support of 500 riyals—or 6,000 riyals a year—for broad groups of citizens. The measures were issued at the direction of the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz, based on a proposal presented by His Royal Highness Prince Mohammed bin Salman, Crown Prince and Prime Minister.

The measures aim to rationalize consumption subsidies and gradually shift to targeted cash support. This will help beneficiaries absorb higher bills while also giving them an incentive to conserve, since whatever they save on consumption stays in their pockets.

First: What is the difference between consumption subsidies and cash support?

Consumption subsidies: The government provides a service to everyone at a price below its cost. Both rich and poor benefit, with those who consume the most receiving the largest share of the subsidy.

Cash support: The government pays a direct amount to specific groups, while prices move closer to their actual cost. Beneficiaries can then decide for themselves how to balance their consumption against the money they have left.

This approach is consistent with recommendations from economic institutions, including the International Monetary Fund, which urges governments to replace broad energy subsidies with targeted cash support and direct the resulting savings toward public investment.

How much will your bill increase?

For electricity, the residential rate per kilowatt-hour will rise from 18 to 21 halalas for monthly consumption of up to 6,000 kilowatt-hours, and from 30 to 33 halalas for consumption above that level. That is an increase of 3 halalas per kilowatt-hour in both tiers, or 30 riyals for every 1,000 kilowatt-hours, before value-added tax.

By this calculation, a household that consumes 2,000 kilowatt-hours a month will pay about 60 riyals more, while one that consumes 6,000 kilowatt-hours will pay about 180 riyals more, before tax and changes to fixed fees. These fees will range from 70 to 100 riyals a month, depending on the circuit breaker capacity, replacing the previous meter service fees.

For water, the monthly increase is estimated to be no more than about 67 riyals, including value-added tax, for residential customers who consume no more than 30 cubic meters and whose connection pipes are no wider than 40 millimeters. This group accounts for around 99% of residential water consumers. Government support will continue to cover the water sector’s capital costs, which make up more than half the cost of every cubic meter delivered to a beneficiary.

Who receives support?

Cash support covers:

Civilian and military employees covered by civil service pay scales and operating programs.

Retirees, and eligible family members of deceased contributors or retirees covered by the social insurance system.

Families receiving social security benefits.

For Saudis working in the private sector, support comes through wages and localization. The wage required for a Saudi employee to count as a full-time worker under the Nitaqat program will rise to 5,000 riyals six months after the measure takes effect, then to 6,000 riyals one year after the first increase. This gives businesses an incentive to raise wages so that all their employees count toward their localization quotas.

Why now?

The Kingdom began this transition gradually with the launch of Vision 2030 nearly a decade ago, when it introduced the Citizen Account program to protect households from the effects of economic reforms. But the government has avoided raising electricity prices since 2018, and this year it even increased spending on subsidies to limit the effects of the Iran war on inflation and consumption.

The decision comes at a time when price pressures remain moderate: annual inflation in the Kingdom was 1.9% in September. IMF research confirms that low inflation and a gradual rollout make it easier for households and businesses to adjust to subsidy reforms.

There is another, less obvious benefit: conserving energy reduces the need for fuel used to generate electricity and produce water, potentially freeing up more oil for export. This goes hand in hand with efforts to replace liquid fuels with gas and renewable energy at power plants.

Will prices for goods and services rise?

Electricity and water feed directly into the inflation basket and also make up part of businesses’ operating costs. Whether the increases are passed on to the prices of other goods and services depends on how much these utilities contribute to the costs of each activity, and on whether businesses can raise prices without losing customers.

Some estimates suggest that the impact of the electricity adjustment on most industrial, commercial, and agricultural activities will be limited. The change to water tariffs, meanwhile, does not apply to industrial or agricultural use at all.

In economics, price is seen as a signal that tells consumers the value of what they use. When a price is far below the actual cost, that signal is distorted: those who consume the most receive the largest share of the subsidy, and the incentive to conserve weakens. Cash support changes the equation because eligible beneficiaries receive the same amount whether they consume a lot or a little. Every kilowatt-hour saved becomes money that stays in their pocket. This shift—from subsidizing consumption to supporting consumers—may be one of the most significant, quietly unfolding changes in how households relate to their bills.

Disclaimer: This article is for informational purposes. It aims to explain the news in simple, accessible language. The information it contains is drawn from published news sources and has been adapted and simplified; it does not represent an official position or statement by any entity. The information may be updated after publication, so readers are advised to consult official sources for full details.