Electricity tariffs to stay high - ERA

Kampala. The cost of electricity is expected to remain high due to low consumption and high capital investments (in terms of loans), the Electricity Regulatory Authority chief executive officer has said.

Speaking at a media briefing to address the state of the energy sector in Kampala yesterday, Ms Ziria Tibalwa Waako, the ERA chief executive officer, said that whereas; “we appreciate the concerns of the President that we need a tariff that is affordable to boost industrialisation”, there is need to understand that the cost of capital recovery (interest on loans) continues to be high, a situation that has not been helped by low demand for power.

In a February letter to the Minister of Energy, President Museveni wondered why Umeme had failed to eliminate power losses and why the cost of power continues to be high.
Ms Tibalwa said the cost of power is likely to remain high until when capital investments have been recovered and a substantial increase in demand is realised.
Tariffs, she said, are based on recoveries (of revenue invested) to generate, transmit and distribute electricity to the consumer.

“There are two things [that will bring down power tariffs], capital recovery because capital comes at a cost and increasing demand. These are the factors that can lead to a reduction in price of power,” she said.

At the moment, proposals are ongoing for the refinancing of Bujagali Energy Limited loans with cheaper options of an increased pay back period of about 15 years.
This is expected to reduce tariffs by about Shs90.8 between 2017 and 2022.
Uganda currently has about 1.12 million customers connected to the national grid, most of whom are in urban and peri-urban centres.

According to Ms Tibalwa, there is need to grow consumption from manufacturers in order to create a multiplier effect.
To boost these figures, implementation of the planned 25 industrial parks is looked at as an avenue to increase power consumption of industrialists.
Electricity losses, under Umeme, have reduced from 38 per cent to 17.9 per cent, although it remains above ERA’s 14.7 per cent target.

However, in his letter President Museveni highlighted that “I thought losses were supposed to be eliminated,” one of the biggest contributors of the current high cost of electricity.

A unit of electricity currently costs Shs718.75 for domestic users and Shs369.5 for larger and industrial users. This,remains relatively high, which casts Uganda as an uncompetitive investment destination.

She however said power losses have seen an improvement over the years and there is capacity to take it even lower to single digits in the future.
Ms Tibalwa said government and less of the private sector must be more visible in the power sector, arguing this “could be a solution to make tariff more competitive”.

Penalties
ERA is planning to introduce strong penalties to licensed companies that fail to deliver services in accordance to the set standards.
This, according to Ms Tibalwa, will be in the form of taking away some money when companies fail to perform as expected.

Important notes

Rigorous vetting: According to ERA, it is important to vet the source of funding on an investment since it has a strong bearing on end user tariff.
Ms Tibalwa says investments must undergo rigorous vetting to ensure that they are relevant in either boosting demand, increasing reliability and reducing losses among others.

Way forward: Ms Tibalwa also advised that Umeme, as a company that has been in Uganda should discuss with government on how they could come to a common understanding to ensure that they continue to deliver service without negatively impacting the economy.

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