22 January 2013

Uganda: High Tariffs for Next Decade

Kampala — Consumers who have been calling upon government to intervene in the power sector reduce the power tariffs will have to wait longer before that dream is realized.

This is because the Bujagali Hydro Power project that was commissioned in October last year is an expensive project and government has to continue financing the loans it obtained for its construction.

Julius Wandera, the Communication Officer at the Electricity Regulatory Authority (ERA) told East African Business Week last week that power tariffs have to be increased so as to sustain the energy sector.

"If we want to sustain the sector, power tariffs have to go up. We have to increase them because currently we have closed the dispatch from all thermal plants," Wandera said, adding, "The sector financing needs to be sustained because Bujagali is an expensive project and the government has to finance those loans. So it will take around ten years."

He said, "We may have to continue to pay expensive tariffs for some time until all the exogenous factors (inflation, fuel prices and exchange rate) have been harmonized."

He however said that the power tariffs had not yet been increased pending consultations with other stakeholders.

Wandera also told the East African Business Week that the other option to make power cheaper would have been to use more of Eskom. He however added that it wouldn't be feasible since Eskom's activities are determined by a number of countries in terms of the amount of water they can use.

According to reports, Eskom, the power firm that runs the Nalubaale and Kiira hydropower plants, needs about Ush33b this year from Ush29.7b last year.

Umeme's annual revenue requirements also increased to over sh226b from sh189b recorded last year. This was mainly driven by increase in the investment costs despite the new targets.

Beginning this year, the retail tariff charges for electricity services will be subjected to fuel cost charges, foreign exchange rate fluctuation adjustment and an automatic adjustment for inflation on a monthly basis as opposed to the quarterly basis.

The 250MW Bujagali dam that was inaugurated in October last year was not only viewed as the solution to Uganda's electricity woes, but also the beginning of cheaper electricity.

The tariffs paid by the consumer must be sufficient to recover the costs of power generation, costs of transmitting or delivering this power to distribution companies and the costs of distribution and supply to the end-user consumer.

Therefore, lower power tariffs may not be realized anytime soon.

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