Low oil prices keep power tariffs at bay

Thursday July 16 2020

Electricity tariffs for the quarter ending September have been maintained due to low international oil prices. PHOTO | EDGAR R. BATTE

Despite an increase in all other parameters used in determining electricity, reduced international fuel prices have enabled the regulator to maintain the power tariff as it was the last quarter.
Electricity Regulatory Authority (ERA) is the regulator of electricity supply and is responsible for determining the cost of power on a quarterly basis.

For the third quarter of 2020, covering July up to the end of September, ERA has maintained the tariffs to that of the second quarter ended in June.
For instance, domestic customers will pay Shs250 for the first 15 units purchased in a month.

Thereafter, a domestic customer will continue to pay Shs750.9 per unit as it were in June.

Commercial consumers will continue paying Shs645.6 per unit while medium industrial users will pay Shs570.9.

Large industrial, extra-large industrial and street lighting have also been maintained at Shs361, Shs301.7 and Shs370, respectively.

Oil price dip
This is despite the increased loss of value of the shilling to the dollar, increased core consumer price index and United States of America producer price index, which are the parameters used to determine the tariff.


International oil prices, on the other hand, lowered from $55.4 per barrel in February to $25.1 in May.

While all the parameters have been severely impacted by the onset of coronavirus, its effect on the fuel prices has worked for the good of the country.

The cost of fuel is important in determining the cost of electricity because there is a fuel component in power generation. The energy sector took a severe beating especially to oil prices occasioned by virus inspired lockdowns across multiple countries, affecting economic activities and paralysis of the airline industry.

A price oil war between Saudi Arabia and Russia in March also worsened the situation.

“Saudi Arabia slashed its selling prices and increased production after Russia refused to join its plan to further cut output and boost prices in early March,” a report by CNBC reads.

In what the Guardian termed as the fastest plunge, oil prices dropped drastically to the point that producers were paying buyers to take oil off their hands.

effect of covid-19
Meanwhile, circumstances in the country have also not been favourable on the tariff.

Demand for electricity, which is a key ingredient for low tariffs, fell by 20 per cent during the quarter because of reduced industrial activity and low disposable income.

According to Mr Julius Wandera, the ERA director for corporate and consumer affairs, while the sector has also been affected by Covid-19, the regulator is engaging government to maintain stability of the tariff.

ERA has for a while been reducing the power tariff in a bid to increase consumption.

It is especially important for the tariff to remain affordable currently, in order to ensure increased economic activity post lockdown.

It is anticipated that the country’s electricity demand will increase as economic activities make a comeback following phased easing of the lockdown.