17 December 2012

Uganda: Power Users Question Tariff Adjustment

Kampala — While reading the State of the Nation address in June 2012, President Yoweri Museveni said that the commissioning of Bujagali Hydro Power project would not only eliminate load shedding for the next two years but also lower the cost of electricity.

However, currently consumers feel that the cost of electricity has not gone down at all, instead the companies involved in the sector are proposing an increase in the electricity tariffs.

Last week during a stakeholder Sensitization Workshop on automatic tariff adjustment in Kampala, participants queried the rationale behind the increase in the electricity tariffs.

The companies; Uganda Electricity Generation Company Limited (UEGCL), Uganda Electricity Transmission Company Limited (UETCL), Uganda Electricity Distribution Company Limited (UEDCL), Eskom and Umeme have all presented proposals to the Electricity Regulatory Authority (ERA) with increased budgets which have to be financed by the electricity tariffs.

According to Mr. Julius Wandera, the Communications Officer at ERA, UETCL which is the sole buyer of electricity pays the generators (Eskom, Bujagali, UETCL) in dollars but sells to the distributors (Umeme, UEDCL, Ferdisult) in shillings and that the automatic tariff adjustment will cater for the exchange rate gaps.

"The genesis of the automatic tariff adjustment, pegging it to the dollar rate, fuel prices and inflation was the removal of government subsidies.

But this process has been going on, it was being done on a quarterly basis... this time though the tariffs will vary depending on the macroeconomic variables (Inflation, Exchange Rate and Fuel Prices) monthly," he said.

However, a participant at the workshop observed that pegging the tariffs to the foreign exchange rate, fuel prices and inflation would tantamount to double pricing given the fact that while computing inflation, fuel prices and changes in the foreign exchange are also accounted for.

Dr. Benon Mutambi, the Chief Executive Officer ERA told stakeholders at the Public hearing that the debt that was contracted by the licensees was not in shillings and that is why the foreign exchange aspect cannot be overlooked.

"Government used to meet these gaps (foreign exchange gaps) with the subsidies but when the subsidies were withdrawn, the consumers will meet that gap.

"You have been paying for this unknowingly because the contracts provide for it.

But we want to do it in a more transparent way. So the distributors of power need to reflect it in their billing," Mutambi said.

He added, "If the Uganda shilling was to appreciate against the dollar in a particular month, the tariffs will automatically be adjusted downwards.

We strongly believe it's the best way forward. It is already being done in Kenya and it eliminates the quarterly adjustments.

Accumulating the increases and announcing them at once would cause shocks."

Mbaga Tuzinde, an Economist at ERA also clarified that the base tariff will be reviewed once a year and that the monthly adjustments will be the movements up and down as a result of the exogenous factors.

However, a sizeable number of participants at the public hearing opposed the idea saying that the system will increase the cost of power which will negatively affect the final consumer.

They argued that manufacturers will inevitably raise the prices of goods citing power costs as the major reason.

Uganda Manufacturers Association (UMA) recently issued a statement in the local press opposing the move and so did the Kampala City Traders' Association (KACITA).

"UMA is deeply concerned about the development as it comes against the background of an increase by 70% and 40% respectively for the large and medium sized industries that happened on Jan. 15," the statement reads in part.

It continues, "UMA as a key power consumer is opposed to the proposed power tariff review and implementation and hereby notifies ERA to stay the process."

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