Uganda powers industry with lower energy tariff
Friday April 15 2022
Uganda has maintained the trend it started in 2020, to lower the electricity tariff in a bid to meet its industrialisation targets and offer its manufacturers a competitive price.
For the April-June quarter, the Electricity Regulatory Authority (ERA) issued a tariff reduction of 1.44 percent, on the basis of a positive growth in demand for electricity between January and March, compared with the last quarter of 2021. The reduction translates to Ush6.7 for every unit of electricity consumed across consumer categories of domestic, commercial and industrial users categorised as large and extra-large consumers.
While announcing the new tariff for this quarter, ERA officials said the demand for electricity had jumped from 1,260.25 GWh between October and December 2021 to 1,353.1 GWh in the first three months of 2022. According to ERA, the growth is attributed to the full reopening of the economy and other initiatives such as the cooking tariff.
“Early indications show that domestic consumers have taken up this at a rate higher than usual,” explained Patrick Tutembe, the Principal Economist – Pricing, at ERA.
The tariff reduction is mainly supported by exchange rate appreciation, as the Uganda shilling continues to hold strong against the dollar in recent months and throughout the pandemic period.
For example, the Uganda shilling appreciated against the dollar by 0.71 percent from Ush3,564.09 to the dollar in quarter one of 2022 to Ush3,538.96 to the dollar in the second quarter.
The new tariff also considers the country’s energy mix growth towards capacity plants and inflation, with the consumer price index increasing by 1.01 percent from 115.35 for November 2021, to 116.52 for February this year.
Despite the lower tariff, the growth in demand for electricity is a boon for power distributor Umeme, which registered $524.6 million in revenues for 2021, up from $446 million in 2020.
But the government’s push for industrialisation could dampen Umeme’s fortunes as President Yoweri Museveni has calls for a policy to bypass the distributor and supply power direct to large and extra-large industrial consumers.
Already, the government has started a pilot to take power directly to two industrial parks — Kapeka and MMP industrial park, a move that will starve the power distribution utility firms, if rolled out to cover the rest of the industrial parks.
Last month, the president promised Chinese investors, he would amend the law and fast track direct supply of power to industrial parks.
“Power should go directly from generation to the consumer, especially the industrial consumer. We should amend the law. I will talk to the Speaker [of Parliament],” he said, during the meeting.
Economists say what will determine whether this policy shift can be fully rolled out or dropped, if whether the consumption capacity of industries will lead to increased demand for power.
The experts cite the need to utilise the generation capacity from the solar plants, mini hydros, and mega dams like the 600MW Karuma hydropower project, expected to come on stream this year.