Uganda: Umeme Revenues Face Decline As Era Lowers Consumer Tariffs

Power utility firm Umeme faces a second straight year of declining revenues after Uganda's energy sector regulator announced on July 9 that end-user tariffs for electricity will reduce in the third quarter of this year -- a relief for consumers whose burden eases by two percent compared with prices for the April-June period.

The Electricity Regulatory Authority (ERA) said the tariffs for the July-September quarter are a weighted average of many factors, but the biggest driver was the appreciation of the Uganda shilling against the US dollar -- by 3.3 percent in the second quarter of 2021.

In the second quarter of 2021, the local unit against the dollar appreciated from Ush3,665.78 as of February 26 to Ush3,546 as at end of May. Indeed, the Uganda shilling also appreciated by 4.1 percent against the dollar from an exchange rate of Ush3,699.17 to the dollar in November 2020, which the regulator used to determine the base tariff for the year 2021.

Umeme executives fear that the low tariffs coming in the middle of a second lockdown due to the Covid-19 pandemic may trigger a decrease in demand for power, which impacts revenues.

"I am yet to look at the numbers but with lockdown, demand in the city is down, because there is no activity. For domestic users, again, one may not have money in the pocket to buy electricity," said Selestino Babungi, the Umeme MD.

The Uganda Securities Exchange listed Umeme -- also cross listed on the Nairobi Stock Exchange -- is looking to recover from last year, when Covid restrictions had a direct impact on the company's revenues.

The utility firm's revenues last year dipped by seven percent to Ush1.66 trillion ($466.5 million) compared with Ush1.77 trillion ($497.4 million) in 2019.

The dip was attributed to reduced demand for power during the 2020 lockdown, which saw the cost of operations increase by six percent to Ush226 billion ($63.8 million) due to Covid-19 related costs and network maintenance expenses.

In February 2020, peak demand for electricity in Uganda was 728.7MW, but in March when the government imposed lockdown, demand dropped to 694.5MW, and hit a low of 588.8MW in April, before picking up in July, August and September.

The regulator said the impact of the current Covid-19-induced restrictions, imposed in June until the end of July, which include suspension of many business activities and inter-district movements, will have an impact on the sector.

"This time we will again see the impact of Covid restrictions, which are in force, hence demand will reduce, the sector will incur additional costs, and generation projects will delay," said Vianney Mutyaba, manager of pricing at ERA.

Moreover, Umeme revenues are also affected by high energy losses, whose target the utility is not meeting, according to data from ERA, which shows that the energy losses currently stand at 17.7 percent, against a 14 percent target regulator set for 2021.

The approved new tariffs represent a weighted average reduction of two per cent, relative to the tariffs of the second quarter of 2021, which featured reduced tariffs for commercial and medium industrial consumer categories.

This was the second time in a row that ERA reduced tariffs for the two categories, with the aim of supporting electricity consumers to recover from the effects of the Covid-19 pandemic.

Domestic consumers will pay Ush250 for the first 15 units under the lifeline tariff and thereafter pay Ush747.5 (20.20 US cents) for the next units purchased -- a reduction from Ush750.9 (20.29 US cents) in the previous quarters. Commercial consumers will pay Ush616.6 (17.38 US cents) from Ush639.8 (18.04 US cents); medium industrial consumers will pay Ush526.9 (14.58 US cents) from Ush556.0 (15.67 US cents), while large industrial consumers will pay Ush355.0 (10.01 US cents) from Ush361 (10.18 US cents). The extra-large consumer category will pay Ush300.2 from Ush301.7, while the tariff for street lighting has been maintained at Ush370.0 (10.43 US cents).

This means the biggest winners in the tariff applicable for the period July-September are commercial and medium-size industrial consumer categories, with a reduction of as much as Ush23.2 per unit and Ush29.1 per unit of electricity consumed respectively, according to ERA chief executive Ziria Tibalwa Waako.

"The reduction in the tariffs of these two categories is a deliberate effort by ERA to support SMEs to recover from the adverse effects of the Covid-19 pandemic, thereby contributing to the recovery of the economy," said Mr Waako.

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