Tuesday, October 25, 2011

Uganda: power tariffs to rise due to weak shilling, inflation

By Faridah Kulabako, The Daily Monitor

Power consumers are likely to pay more for every unit of electricity if the Electricity Regulatory Authority (ERA) proposal to adjust tariffs upward is approved by government and the public.

The acting executive director to the authority, Mr Benon Mutambi, said ERA will table its proposal to allow it pass on the increasing production costs arising from exchange rate fluctuations, inflation and fuel prices to final consumers.

“The depreciation of the shilling and high international oil prices, amid unchanged electricity tariffs has increased the burden of government subsidies on power to unsustainable levels,” he told the press at the release of ERA’s third quarter performance report yesterday.

The government subsidises electricity up to 60 per cent, meaning that the final consumer only pays 40 per cent of the total bill. A unit of electricity for domestic consumption goes for Shs385.6 per unit while industrialists pay Shs184 per unit. If government scrapped subsidies by 100 per cent, a unit of electricity for domestic consumption would go for Shs800.

Mr Mutambi said: “We are reviewing the tariff methodology to ensure that electricity sector costs are largely recovered from the tariff with minimal government subsidies. Subsidies are distortionary and affect the availability of funding to other equally important sectors of the economy.” He added: “The situation would probably have been different if the tariff was allowed to adjust to full-cost reflective levels so that the subsidy funds are invested in the construction of power projects.”

Mr Mutambi, however, declined to give any specific figures of the new tariffs, saying it has to be agreed upon by all stakeholders. He added that over-reliance on subsidies is not an effective way to develop the electricity sector and that it has led to difficulties for the government to meet its subsidy requirements because it is difficult to budget for subsidies without creating unnecessary domestic arrears.

Electricity suppliers including, Aggreko, ElectroMax and Jecobson switched off their thermo power supply to the national grid in June over non-payment of Shs207.5b arrears by government, leading to the persistent load-shedding.

The permanent secretary in the ministry of energy, Mr Kabagambe Kaliisa, told this newspaper last evening that ERA is given the mandate under the electricity law to determine tariff structures.

Any increase in tariffs would, however, affect the competitiveness of the local industrial sector and would make electricity expensive for domestic consumers. This is also expected to increase losses in the sector due to illegal connection and power theft which currently stand at 30 per cent.

The executive director Private Sector Foundation Uganda, Mr Gideon Badagawa, said raising tariffs would result in closure of some businesses given the economic meltdown.


1 comment:

  1. If the government is not paying the suppliers, is it really subsidizing anything?