Monday January 13 2014

ERA considers electricity tariff adjustment in 2014

ERA executive director Benon Mutambi. He says

ERA executive director Benon Mutambi. He says tax payers may be affected if tariff adjustments are effected. File photo 



The Electricity Regulatory Authority (ERA) is considering adjustments in power tariffs this year.
The authority has said it is currently “inevitable for tariffs to adjust to cost new levels” for reasons related to increasing private investments in the sector.
The regulator, in its report “Does privatisation lead to a reduction in electricity tarriffs?” released last month, said to the extent that the private investor has to recover the full costs related to debt service obligations, return on investments and operations and maintenance, it logically follows that the costs to be recovered in the tariff will increase as new investments are made.

“When investments are financed by government the effect is always different,” the report read in part, but, “If such an adjustment does not happen for one reason or another then private investment in new power plants will dwindle and demand will outstrip supply with the attendant costs of un-served energy to the economy.”

Mr Benon Mutambi, the ERA executive director, argued that after financing an [energy] infrastructure project, government may opt not to recover investment costs from the direct consumers of the products by rather spreading the burden to all eligible tax payers, but “government is not a profit maximiser and does not necessarily have to earn a return on equity or investment.”
The uncharacteristic arguement from the country’ electricity regulator comes on the heels of a proposition by monopoly power distributor, Umeme, to tilt end-user tariffs for domestic consumers by 9.95 per cent this year.
The proposal, if accepted, means the price of electric power used in homes will rise from Shs524.5 to Shs576.69 per unit consumed.

Umeme’s head of communications Henry Rugamba, told this newspaper last year that they had submitted the proposals because ERA asked it to.
If each of Umeme’s 494,208 domestic consumers uses an average of about 30 units a month, the company stands to raise Shs8.6 billion in revenues, which is about one-sixth of the profit it made after tax in 2012.

Electricity access in the country is still low due to the low investments in the risky sector, but ERA noted: “Present joint efforts should be geared at minimising any costs of tariff adjustments for the competitiveness of the industry sector” and also downplayed the role of privatizsation in reducing electricity tariffs.