Rwanda plans to adopt a lower power tariff for industries as an incentive for investment as it seeks to build its manufacturing base. The government has commissioned a study on the existing energy tariff regime, whose results will guide the process of adjusting the rates.
The cost of energy in Rwanda, estimated at $0.22 per kilowatt-hour (KWh), is higher than that in the other East African countries, where it is $0.08 to $0.10, according to World Bank figures.
The high energy costs are attributed to the country’s dependency on expensive thermal resources, in particular diesel and heavy fuel oils, which account for approximately 40 per cent of the country’s 110MW installed energy capacity, while it imports 14.5MW. Hydropower accounts for 59 per cent and methane gas one per cent.
“We want to ensure the power we are using is affordable, mostly for productive sector industry,” Alex Ruzibukira, deputy director in charge of trade and industry at the Ministry of Trade, told The EastAfrican.
According to Mr Ruzibukira, industrialists do not find the current tariffs by the Energy Water and Sanitation Authority (EWSA) helpful.
“We are trying to ensure that the tariffs are competitive, in comparison with the region, but most importantly what industrialists want is for us to ensure the power is available and reliable,” he added.
The government is targeting increasing investment in agro-processing and manufacturing of construction materials. In May 2012, EWSA introduced “time of use” tariffs for industries to force them to operate off-peak to lower their energy costs.
Under the “time of use” regime energy costs for industries operating between the peak hours of 5 pm and 11 pm increased by 33 per cent, from the then prevailing rate Rwf105 ($0.17) / kWh excluding VAT to Rwf140/kWh excluding VAT.
Those operating during off-peak hours — between 7 am and 5 pm —were expected to incur lower energy costs, with a reduction of 24 per cent excluding VAT at Rwf80 ($0.13). With this regime, the government aimed to increase power supply to households if industries cut back on demand during peak hours.
Analysts say while Rwanda has done well in improving energy access and in expanding power generation capacity, its current level of generation still remains a major constraint to the country’s economic transformation aspirations.
Investors in the manufacturing sector say they need preferential tariffs to cut energy costs, which increase the cost of doing business and make their products uncompetitive.
“We have agreed with the government that we should have a specific regime (for industries)… if you want to have the private sector come and invest in Rwanda ... energy is still too expensive,” Hannington Namara, the chief executive officer of the private sector umbrella organisation – Private Sector Federation(PSF), told The EastAfrican.
Mr Namara said industries need preferential tariffs to encourage investment in the manufacturing sector.
“We are discussing with the government to determine who should qualify for the energy incentive. We want investors in the special economic zone to invest for exports. They should be given a special regime,” Mr Namara said.
In a deal whose details are yet to be made public, the government is negotiating with Ethiopia to supply it with power under the Eastern Electricity Highway Project.
“If that happens, it can bring down the cost of power to 10 cents per kilowatt-hour,” Mr Namara said, adding that Ethiopia has the cheapest power surplus.
Rwanda is expected to import its share through Lessos in Kenya connecting to Uganda through Tororo-Bujagali-Kawanda-Masaka-Mbarara Mirama up to Kigali. Due to its current huge energy deficit, Rwanda’s electricity reserve margin is very low at approximately 0.9 per cent on average, well below the international norm of 15-20 per cent.
But the government has recently embarked on reforming its energy sector with the aim of cutting power bills and securing reliable supply of electricity. The reforms include liberalising the industry to allow the private sector to participate actively in electric power production, transmission, distribution and trading both within and outside the country.
However, this year, government expects an additional 65.5MW to be generated with the completion of ongoing projects, which include Nyabarongo I MHPP (28MW), Kivuwatt Methane Gas (25MW), Giciye MHPP (4 MW), and the IPP Solar PV power plant.
The Government has set a national target to increase the country’s electricity access to 70 per cent by 2017. It plans to increase installed capacity to 1,160MW by 2017 according to estimates by AfDB. This requires a total investment of approximately $4.2 billion from 2013-2017 with an annual investment of $845 million.
But the government has recently embarked on reforming its energy sector with the aim of cutting power bills and securing reliable supply of electricity.
The reforms include liberalising the industry to allow the private sector to participate actively in electric power production, transmission, distribution and trading both within and outside the country.
This will see the formation of an independent agency, the Energy Holding Company, which will manage energy development and electricity distribution in the country.