Uganda government ends power subsidies

KAMPALA, UGANDA - Starting this week, Ugandans homes will have their electricity bills increased by 36% after the government of Uganda scrapped subsidies to the electricity sector.
Energy Minister Ms.Irene Muloni confirmed the scrapping of subsidies citing the huge bill amounting to Ush1.2 trillion (US$500m)that the government has had to pay since to 2005.
Domestic consumers, who use electricity for lighting and electronics, have been paying Ush385 ($0.16) per unit which according to government was subsidised by up to 60%.
These customers will have to pay a revised fee of Ushs524.5 ($0.21) per unit after the scrapping of the subsidies.
Medium and large industrial users have not been spared either as their tariffs have been hiked by 38% and 69% respectively.
There are fears that this could lead to a spill over effect since manufacturers may transfer the burden onto the final consumer by hiking the prices of their products.
This in turn may reduce consumption and lead to loss of jobs and shut down in some volatile sectors.
There are also concerns that a competitive edge may be lost to neighbouring countries since imported goods may become cheaper than locally produced goods.However, the minister dismissed those fears saying that her ministry had already interfaced with the industrialists and explained to them the reasons for the tariff increase.
"If you look at the money we have spent on subsidies, that money could easily have constructed another big dam or even two smaller ones. We have explained to them (industrialists) that it is better to pay extra and in the end have reliable power supply," Muloni said.
She told reporters last week that the money will be freed up to finance the expansion of the Uganda's generation capacity which has been shrinking.
"The government has therefore decided to scrap subsidies as the freed up money will be used to finance the implementation of other critical government programmes," she added.
She, however, did not specify which programmes the government will prioritise apart from financing the increment in power generation. The subsidy is paid to Uganda Electricity Transmission Company (UETCL) so that as it purchases electricity from generation companies, it pays the stated price. UETCL then sells the power to UMEME to distribute at a lower rate to mitigate high tariffs.
"The tariffs do not reflect the current market price of generating electricity and also continues to deny funding to other sectors of the economy," says Dr Benon Mutambi, the Executive Director Electricity Regulatory Authority (ERA). Mutambi notes, "If electricity was sold at the real price, then costs recovered from tariffs would go into producing more power."
The timing of the removal of this subsidy has already caused a public outcry since the economy has been in a slowdown, increased interest rates by banks and a volatile currency.
It also comes at a time Kampala City Traders refused to open their shops due the commercial banks continued hike of interest paid on their loans.
Scrapping of fuel subsidies in Nigeria caused a public outcry leading to massive street protests.
Uganda also continues to suffer an electricity deficit which has heightened load shedding in the country and hurt businesses.
This even led to protests by some industrial power users in the Kampala City Centre.
The thermal and hydroelectric power produced is about 200MW however, increased blackouts in Uganda show there is an energy shortfall of 195MW.
Critics of any planned scrapping of subsidies point out that this will hurt the country’s Uganda's competitiveness.
However some industrialists talked to say that in the long term, construction of dams and increased power generation will guarantee consistent power supply which is cheaper than running generators which help with turn around production time.