New power tariffs bad for business - experts

With the government having finally bitten the bullet and effected new electricity tariffs on Sunday, industrialists and business people are now assessing the impact the tariffs shall have on business costs.
Many have warned that they are most likely to affect their profit margins, the competiveness of their products in the regional market and also alter their plans to employ more staff.

PSFU Executive Director Mr Gideon Badagawa told Daily Monitor that the tariffs would have a bearing on companies’ profits and their appetite to employ more people. “Power is an important factor in production. The new tariffs will eat into the profitability of businesses. In the short run, we might not be able to employ more people given that we would be paying more for power,” said Mr Badagawa.

He adds that these challenges necessitate building efficiency in the private sector’s – through ‘containing internal costs.’The new tariffs mean consumers are likely to pay more for goods and services because producers are likely to include the additional cost when billing consumers.

“With higher tariffs, the private sector is likely to weigh the prospects of importing finished goods verses struggling with the constraints of manufacturing the goods and products needed,” says Mr Sebaggala M. Kigozi, the Executive Director of the Uganda Manufacturers Association.

The tariffs, which took effect on Sunday, January15, are as a result of the government’s decision to do away with the Sh396 billion-subsidy bill to the energy sector, a bill it has struggled to pay.

With the 250MW Bujagali expected to generate its first 50MW to the national grid in February, the new tariffs will serve to prepare power consumers to accept to pay more for a cheaper power source – hydroelectricity, the limited supply notwithstanding.

The Private Sector Foundation of Uganda (PSFU) says though it appreciates the rationale for the increase of the tariffs by margins ranging from 38 per cent to 69 per cent, the move would, in the short run, ‘worsen’ the business environment.

Indeed, the business climate is presently ‘tense’. Just last week, many Kampala-based traders closed their business premises after declaring a three-day strike, to show displeasure with the commercial banks that they accuse of levying their unfairly high interest rates loans.

Interest rates presently range from 21 per cent to 30 per cent and commercial banks allegedly adjust them upwards to mitigate the effects of inflation, which is now at 27 per cent.

“It is also very much likely to affect the overall production and supply of consumer goods and services thereby creating a shortage that spirals into rising prices as a result of less supply coupled with higher demand,” says Mr Sebaggala.

He says the raising of the tariff at a time when access to power is still limited, and there is a lot of bureaucracy when applying for it, this would worsen the regional and global competitiveness of the Ugandan manufacturing sector.

Though Uganda’s tariff (US$0.127 cents) for large industries is lower than Kenya’s (US$0.175), the new tariff still could scare away investors who could have considered Uganda when its rates were lower. UMA now says the government should offer a tax waiver on diesel for industrial generator use.

“This would work as a stopgap measure, to allow Ugandan industries to use their generator sets for the manufacturing, production and supply of goods and products needed in the country and beyond,” says Mr Sebaggala.

nwesonga@ug.nationmedia.com