Electricity News

Subsidies Return As ERA Announces New Electricity Tariffs

The Karuma Dam construction will be completed soon

DEI – Nearly 10 years after Uganda scrapped electricity subsidies for consumers, the government has reintroduced a small window for such financial relief, with the beneficiaries being only two industrial parks.

Ruth Nankabirwa, the Minister for Energy and Mineral Development, said last week that government had decided to introduce a pilot tariff category for two industrial parks, where the tariff will be capped at 5 US cents per kWh. The new tariffs kick in at the start of 2022.

“To improve the competitiveness of Uganda’s manufacturing sector, electricity to industrial parks will cost 5 US cents per kWh. The piloting project will target Lao Shen in Kapeka and MMP Industrial Park in Buikwe district,” she said.

While this tariff is one of the lowest in the market, government explained that Umeme, the main electricity distribution company, will be able to recover its money through increased consumption. In other words, Umeme should charge a low tariff and spur consumption, which ultimately brings it more money, than charge a high tariff and dampen both production and consumption levels.

And if the attractive tariff does not lead to increased consumption levels, government has promised to chip in with subsidies to cover any loss of revenue that Umeme might incur.

“During the piloting period, consumption of electricity in the two industrial parks is expected to increase to help offset the revenue shortfall that would result from supplying electricity at 5 US cents per kWh. In the event that the shortfall is not covered by increased consumption of electricity, the government will provide the necessary financial subsidies,” Nankabirwa said.

Nankabirwa announcing the new tariffs last week

Government scrapped subsidies in the electricity industry in 2012 after the commissioning of the Bujagali hydropower dam. The removal of the subsidies was meant to allow the market forces to determine the tariff.

Also to benefit in the new rate structure are domestic consumers under a new charge that aims at promoting use of electricity during home cooking under the declining block tariff (or the cooking tariff).

It is hoped that the cooking tariff will reduce the use of charcoal and other biomass sources of cooking fuel by making the cost of electric cooking lower than the cost of cooking by charcoal.

For the low-income earners to access affordable electricity, the Electricity Regulatory Authority (ERA) has introduced the lifeline tariff where one can access a minimal package of electricity units deemed necessary for basic domestic use at a low cost.

The new approved 2022 annual base end-user tariffs, in general are:  UGX 747.5/kWh, UGX 597.1/kWh, 472.0/kWh, UGX 355.0/kWh, UGX 300.2/kWh, and UGX 370.0/kWh for domestic, commercial, medium industries, large industries, extra-large industries and street lighting respectively for the period January to March 2022.

Dr. Sarah Kanabi Wasagali, the chairperson ERA, said electricity demand is expected to grow at an annual rate of approximately 11.6% in 2022 while the total energy purchased by UETCL is expected to increase from 5,014 GWh projected for 2021 to 5,595 GWh in 2022.

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