Electricity tariffs to increase

ERA says all economic fundamentals that are used to determine electricity tariffs have been increasing. Photo | File 

What you need to know:

 Electricity Regulatory Authority says that whereas it had hoped that factors on which tariffs are determined would stabilise, they have since worsened thus necessitating an increase

Electricity Regulatory Authority (ERA) is this Friday expected to increase tariffs for all categories of consumers. 

The increase, ERA said on Monday, comes after it undertook a tariff review for the 2022 fourth quarter (October to December), in which key price determinants, among them inflation, movements in exchange rates and fuel prices were considered. 

In an interview in Kampala on Monday, Mr John Julius Wandera, the ERA director corporate and consumer affairs, said the tariff review had looked at changes in economic fundamentals before considering a revision upwards. 

Electricity tariffs, which are adjusted every quarter, are determined by changes in inflation, exchange rate movements, fuel prices, other factors in the energy mix and any other cost. 

All the above have since the beginning of the year been volatile, with inflation increasing to above 10 percent while the shilling has depreciated by 6.92 percent against the dollar. 

Similarly, local fuel prices have increased by about 50 percent, while international crude has risen by 46.47 percent, according to macroeconomic data used by ERA to determine the 2022 base tariffs for the fourth quarter.  

Beyond movements in economic fundamentals, Mr Wandera said during the previous quarter, there had been movements in the generation mix with more power coming from expensive sources, which had seen the entire cost on generators increasing by 98 percent, in addition to an increase in maintenance and operation costs for both UETCL and Umeme, which rose by 28 percent and 25 percent, respectively. 

During the third quarter (July-September), he indicated, electricity tariffs had been maintained after stakeholder engagements with Ministry of Energy and Uganda Manufactures Association despite the then adverse movements in macroeconomic fundamentals that had resulted into an increase in annualised electricity supply revenue requirements by Shs146.5b. 

“Despite the increase in revenue requirement, following consultation, [ERA] maintained the electricity tariffs during [July and September],” he said, noting that at the time, ERA had been optimistic that the Electricity Supply Industry would experience favorable movement in the macroeconomic factors in the subsequent quarterly tariffs review and, therefore, recover the  shortfall experienced in third quarter of 2022. 

“However, as part of the tariff review for quarter four, ERA has noted continued adverse movement in the macroeconomic factors affecting the financial sustainability of the Electricity Supply Industry,” he said.    

According to ERA, over the last three months, the shilling has depreciated against the dollar from Shs3,564.09 used to determine the 2022 Annual Base Tariffs, to Shs3,810.7 as of August 31, which was a cost increase of about 6.92 percent.  

Similarly, ERA noted, international fuel prices for crude as of August, stood at $117.72 per barrel compared to $80.37 used in determining the 2022 annual base tariffs, representing an increase of 46.47 percent from the base period. 

Mr Wandera further noted that during the third quarter, there was increased dispatch of thermal power due to disruptions at Isimba Hydro Power plant, which was relatively more expensive than power generated from hydro dams.  

It is not yet clear how the structure of the new tariffs will look like. However, ERA has indicated they will be announced this Friday. 

Monitor understands that the ERA board will meet before Friday to decide on what will be charged for the different user categories. 

Tariff movements

According to ERA data, during the third quarter, domestic electricity users paid Shs747.5 per kilowatt hour, while commercial consumers paid Shs580 for the same quantity. 

Medium and large industries paid Shs439.1 and Shs355, respectively, while extra-large industries paid Shs300.2 per kilowatt hour. Street lights paid Shs370, which as a whole, returned a weighted average of Shs460 per kilowatt hour. 

The extra-large industries use 28 percent of total electricity, while large industries consume 24 percent. 

Medium industries consume 16 percent, commercial 11 percent while domestic users, which amount to 1.7 million users consume about 21 percent of the total generated power.