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Why raising power tariffs won’t reduce energy losses

In January this year, the Electricity Regulatory Authority (ERA) declared that it had increased fines to be paid by people who ‘steal’ electricity.

Effective January 15, ERA announced that home owners and small-time shopkeepers who ‘stole’ electricity were to pay Shs 350,000 – up from Shs 295,000. Individuals or organisations that ‘stole’ electricity for commercial use were to pay Shs 1.4m, up from Shs 1.1m.

People who ‘stole’ power would also be expected to pay their estimated unbilled consumption on top of the fine. Dr Benon Mutambi, ERA’s chief executive officer, was quoted in media reports saying that the new fines “would discourage power theft and … reduce commercial losses”.

Because energy losses are costly, efforts to stop this are laudable. For a country trying to reduce power loss due to theft, news that ERA has increased tariffs by 2.5 per cent becomes paradoxical. According to media reports, beginning July 15, 2015, domestic consumers who have been paying Shs 544.9 will pay Shs 558.4 for each unit of electricity they consume.

Commercial, and medium and large industrial users are also going to be paying more money until September this year when power tariffs will be reviewed. Part of the reason people in Uganda ‘steal’ electricity is because it is expensive.

Increasing the price will likely drive people such as maize millers, who were shown to be ‘stealing’ most of the electricity they consume, to ‘steal’ more. A 2010 Distribution System Losses and Collection Rates study by Umeme showed that maize millers consumed 15 per cent of electricity, but they stole most of it.

Increasing the price of electricity also makes it less affordable. The Rural Electrification Project is trying to ensure that the dismal access to electricity, which stands at six per cent, is increased. The 15 per cent national access to electricity is also too small.

As such, Ugandans, especially women and children, resort to unclean energy sources such as firewood and charcoal. As it is already, few Ugandans can afford to cook or even bring a kettle to boil water using electricity in this Yaka era.

ERA said that the “foreign exchange factor” led to the increase in the July-September 2015 power tariffs.  One wonders why the volatile foreign exchange factor still plays a role in the pricing of Uganda’s electricity.

When Uganda was still highly-dependent on thermal energy, and during the commissioning of the Bujagali hydropower project, high electricity tariffs were blamed on the need to buy fuel to generate thermal energy; the forex factor also played a role in the pricing of Uganda’s electricity because of the fuel requirements for thermal energy.

Today, Uganda consumes less thermal energy, making one wonder why Uganda’s power tariffs are still subject to the forex rate. Granted, bad investments such as that of Bujagali mean that the forex rate plays a role in the setting of Uganda’s power tariffs. 

But, surely, with the returns on investment for dams such as Kiira and Owen Falls having been paid off, the dollar – which rose to over Shs 3,300 a few weeks ago – should not be a major determinant in the pricing of Uganda’s electricity.

What should the Ugandan government do to ensure sustainable and equitable access to energy? Keeping power tariffs low is one option. Low tariffs translate into fewer energy losses, which leads to lower tariffs, which in turn leads to more people affording power.

Instead of using Shs 10bn to distribute energy-saving bulbs that Ugandans can afford, government would best subsidize power. Investing in alternative energy sources such as solar, subsidizing initial costs, is also another solution.

This way, Ugandans would be able to use electricity for purposes such as cooking, which would save Uganda’s forest cover and conserve the environment.

datwijukire@afiego.org

The author is a programmes officer at the Africa Institute for Energy Governance.

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