Electricity Tariffs Raised

While domestic power consumers will have to dig deeper into their pockets following a decision by the Electricity Regulatory Authority (ERA) to increase tariffs, companies worry about the rising cost of doing business.

On April 11, the regulator published a new schedule that indicated that domestic power tariffs had risen from Shs 531.5 per unit to Shs 545 per unit. In January 2014, ERA approved the quarterly tariff review methodology to be used in the computation of tariff adjustments on a quarterly basis by factoring in the key macroeconomic indicators that include the exchange rate, domestic inflation and the cost of crude oil on the international market. Apart from the oil price, which dropped, the other two factors rose thus leading to the increase in tariffs.

According to ERA, the core Consumer Price Index – a measure of inflation – increased from 212.9 in the base period to 214.9 in February 2015 according to UBOS statistics, and the US Producer Price Index increased from 189.8 to 191.1 in the same period according to the US Bureau of Labour Statistics. The resultant effect was a slightly positive inflation adjustment factor for the tariff. On the exchange rate, the Shilling depreciated by 4.1% from Shs 2,779.9 to the dollar in the base period to Shs 2,894 at the end of February 2015, according to BoU statistics. The resultant effect was a large positive exchange rate adjustment factor of Shs 35.3kwh for domestic consumers, Shs 29.1 for commercial consumers, Shs 29.5kwh for medium industrial consumers, Shs 22.7kwh for large industrial consumers, and Shs 30.0kwh for street lighting.

Though the dollar has strengthened globally, the Shilling has taken a severe beating against the major currencies since 2014 mainly due to foreign currency outflows for offshore investments in Treasury Bills, government bonds and the large scale infrastructure developments such as Karuma and Isimba hydro power plants. A few weeks ago, the exchange rate hit Shs 3,000 to the dollar for the first time in the country’s history.The fuel adjustment factor takes care of the adjustment for changes in the generation mix and the changes in the international fuel price. Indeed, the global oil price reduced from $80 per barrel for the base tariff to $55 per barrel.

The resultant effect was a negative fuel adjustment factor of minus Shs 23.6kwh for domestic consumers, minus Shs 19.0kwh for medium industrial consumers, minus Shs 18.8kwh for large industrial consumers and minus Shs 19.4kwh for street lighting. Though it was anticipated that the low price of crude oil would bring down the tariff, this did not happen due to the positive effect of the exchange rate, which offset the effect. The new tariffs shall be applicable to all bill readings taken between April 01 and June 30, 2015. However, the price of the first 15 units (lifeline) for domestic consumers has remained at Shs 150kwh. At about 18 US cents per kwh, Uganda has one of the highest tariffs in Africa. Analysts say the high power tariffs are a concern because of the negative effects on the cost of doing business, which makes Ugandan products and services less competitive in both local and global markets.

Source : The Independent

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