Uganda’s power plan to cost $ 4.4 bn

May 09, 2006 02:00 AM

by Barbara Among and Daniel K. Kalinaki

Electricity tariffs in Uganda are expected to rise by about 160 % as the government urgently seeks to raise $ 4.4 bn needed to solve the country's crippling energy crisis.
The money will be used to fund five new hydropower stations, including Karuma on the River Nile, as well as to pay for thermal generation plants proposed to relieve the current power shortage, which has slowed economic growth from a projected 7 % to 4.5 %. Documents say that $ 2.05 bn is expected to come from the private sector, with public and local institutional investors forking out the rest.

Uganda has an installed capacity of 300 MW, but because of the recent drought, water levels in Lake Victoria dropped so low that power production fell to 135 MW. Another 50 MW is produced by a thermal plant.
With demand for electricity growing at around 30 MW per year, the government is keen to find a solution to the energy crisis, which official projections say will force the country to spend around $ 1 mm to generate 1 MW from large dams and $ 2 mm to generate the same amount of power from smaller dams. The government is also planning to increase the installed capacity of thermal power to 150 MW, which will increase financial pressure on both government and consumers.

According to the plan, the government currently spends Ush 329 bn ($ 188 mm) on thermal power but only collects Ush 151 bn ($ 86.3 mm) in tariffs, leaving a shortfall of Ush 179 bn ($ 102.3 mm) that the government subsidises. Expenditure on thermal power is expected to rise to Ush 555 bn ($ 317.1 mm) next year with tariff revenues rising to Ush 186 bn, leaving a subsidy requirement of Ush 368 bn.
"Such subsidies," the plan notes, "are not sustainable as they consume funds that would otherwise be channelled into development of long-term power generation infrastructure."

A large chunk of the escalating costs of power will thus be passed on to consumers, while the preferential tariffs previously charged to industrialconsumers will be wiped out in the medium term, according to the plan.
The Electricity Regulatory Authority has been meeting with the power firms to work out a proposed set of new tariffs, which are yet to be announced to the public. However, the Energy Ministry plan offers various tariff scenarios with one common feature -- there is going to be a spike in the power prices.

Power tariffs for domestic consumers currently stand at Ush 216.90 ($ 0.1) per unit, up from Ush 171.40 ($ 0.09) in 2004; industrial users pay Ush 73.60 ($ 0.04) up from Ush 60.40 ($ 0.03) in 2004 while the commercial tariff is at Ush 208.30 ($ 0.12) per unit, up from Ush 164.80 ($ 0.09) in 2004.
The plan proposes three scenarios. Under the first, the duty on fuel used to power generators and thermal plants is waived and a capacity charge is maintained.
Under the second, all subsidies are cut, except the waiver on fuel duty; while under the third, there are no subsidies and the consumer pays the full cost of power production.

The plan notes that the domestic tariff is likely to rise to Ush 331 ($ 0.19) per unit as early as this month, as subsidies are slowly phased out to avoid a "tariff shock." However, with all the subsidies withdrawn -- a proposal that could be effected as early as October 2006, according to the plan, the domestic tariff will more than double to around Ush 566 per unit.
Commercial tariffs are likely to rise from Ush 208.30 ($ 0.12) to Ush 309.20 ($ 0.18) in the short-term, but could soar to Ush 514.30 ($ 0.3) per unit by October if all subsidies are withdrawn.
Medium industrial tariffs will jump from around Ush 297.60 ($ 0.17) to Ush 502.70 ($ 0.29) after the subsidies end, while large industrial users will see their power costs rise from Ush 73 to Ush 167.20 ($ 0.09) and ultimately to Ush 333.70 ($ 0.19) after the subsidies end.

According to the Energy Ministry plan, the tariffs hike will be incremental and the new tariffs will be managed through energy conservation measures.
"Thecost of the power will definitely go up," a senior official in the energy industry told, "but if people can be energy-efficient and use less power, they will protect themselves against the higher costs."

Source: The East African
Market Research

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