The electricity tariffs in Oman are subsidized and are based on a cost accounting approach and do not reflect the true cost incurred in generating, transmitting and distributing a kilowatt-hour of electricity at the consumer end. This paper presents the electricity tariff based on the estimation of long-run marginal cost at generation, 33 kV, and 415 voltage level for Ministry of Housing, Electricity & Water (MHEW) interconnected power system of Oman. The result shows that at the generation level a marginal kW costs US$ 75 per year and a marginal kWh costs 2.07 c/kWh. These costs increase as we move downstream from generation to consumer end. The average cost of electricity at the consumer end connected at 415 V is 6.52 v/kWh or 25.17 Bz/kWh. (c) 2005 Elsevier Ltd. All rights reserved.