SEC announces receiving a letter from His Royal Highness the Minister of Energy, Chairman of the Ministerial Committee for the Restructuring of the Electricity Sector (ref. no. 01-2057-1442 dated 15/ 11/ 2020 corresponding to 29/ 03/ 1442H)), regarding the issuance of a Royal Decree which approves the following:

1- Cancellation of Government fees which the Company was subject to paying pursuant to Royal Decree (ref. no. 14006 dated 03/ 23/ 1439 HD), as of 01/ 01/ 2021.

2- Implementing Operating Revenue Cap Model mechanism to regulate SEC’s required revenue for the fiscal year of 2020. This required revenue will cover SEC’s total operating and financing costs including the distribution of dividends to all its shareholders including the Public Investment Fund (PIF).

3- Implementing a Regulatory Asset Based (RAB) Model as a mechanism to regulate SEC’s revenue, effective from the fiscal year of 2021.

4- Reclassification of SEC’s net Government liabilities.

In light of the above, SEC has signed an agreement with the Government, represented by the Ministry of Finance, dated 16/ 11/ 2020 (corresponding to 1/ 04/ 1442H), to re reclassify SEC’s net Government liabilities in the amount of SAR 167.92 billion into a subordinated perpetual financial equity-like instrument with a redemption option and a profit rate of 4.5% per annum. The profit rate is payable once SEC distributes dividends to ordinary shares. This financial instrument is Shariah compliant and classified under shareholders’ equity and considered non-dilutive to existing shareholders’ stakes. The financial instrument represents about 33.4% of SEC’s total asset as at end of the third quarter of 2020, and includes Government loans and net Government payables and accruals after offsetting for outstanding amounts owed to SEC by the Government, in accordance to SEC’s financial statements at end of the fiscal year 2019). In addition, it includes an amount of SAR 3.35 billion total dividends owed to Saudi Aramco since SEC’s inception until 1439H or 2017G, the book value of which was previously transferred to the Ministry of Finance. SEC will be seeking General Assembly approval to recognize the dividends owed to Saudi Aramco as being part of the financial instrument.

A working group has been formed including representatives from Ministry of Energy, Ministry of Finance, Electricity and Cogeneration Regulatory Authority in coordination with other relevant entities, to study the disputed amounts between SEC and Ministry of Finance regarding technical differences in quantities, prices and handling costs of fuel and electric power. The total disputed amounts between SEC and Ministry of Finance are SAR 10.3 billion. In this regard, it was decided that an independent legal and technical advisor will be appointed with joint approval of both SEC and Ministry of Finance to end the dispute and raise the outcome to the Ministerial Committee during the first quarter of 2021.

SEC expects the aforementioned developments to play a key role in restructuring and strengthening its financial position and its ability to provide its services with higher levels of efficiency and reliability. It will also enable SEC to fulfill all of its financial obligations including fuel payments, purchased power payments as well as distributing dividends to shareholders that were previously excluded. The Company expects that there will be no material impact on its dividends distribution. SEC will assess the financial impact and will announce them to the market once further details become available.

This transaction is considered the world's largest Islamic finance transaction to ever be executed, demonstrating the Kingdom's leadership and global preeminence in Islamic finance.

In conclusion, the electricity sector’s regulatory and financial reforms demonstrate the Government’s continuous support to the electricity sector and its endeavors to raise the overall level of service to its citizens and residents across the kingdom in line with Vision 2030 objectives.

The Company will organize a conference call to discuss this material development with investors and financial analysts on Tuesday 17/ 11/ 2020 at 3:30 PM (KSA Time). Investors wishing to participate in this conference call are requested to contact the Company's Investor Relations Department at: [email protected]

For further information, kindly visit SEC’s website at: WWW.SE.COM.SA