Electricity tariffs to be charged by Umeme from April to June will reduce slightly following favourable changes in the dispatch of generation plants.
Overall, electricity in the quarter has been reduced by 0.2% compared to the first three months of this year, according to a tariff schedule released by the Electricity Regulatory Authority. Broken down to consumer categories, extra-large industries will see the most reduction in tariffs and domestic and commercial consumers the least.
Residential houses, small shops, and kiosks – categorised as domestic consumers – will pay Shs718.5 for each unit of electricity, slightly below the Shs718.9 tariff for the first quarter. The first 15 units purchased by this category every month is priced at Shs250 each, a subsidised rate intended to make power affordable to the poor.
Tariffs for commercial consumers fell 0.1% to Shs647.6 per unit. This category includes small scale industries, fuel and water pumps, restaurants, salons, etc.
The tariff for medium industrial consumers rose 0.2% from the first quarter to Shs591.5, while that of large industries and extra-large industries decreased by 0.3% and 0.4% to Shs374.4 and Shs369.5, respectively.
Power prices for street lighting have been reduced by Shs0.4 to Shs701.5 in the second quarter.
The regulator reviews electricity tariffs at the beginning of each quarter taking into account changes in inflation, foreign exchange rates and fuel prices. Due to a rise in annual core inflation, it had a positive effect on tariffs across all consumer categories, as did the exchange rate following the shilling’s depreciation against the US dollar.
Although international fuel prices rose leading to an upward impact on the base tariff, it was offset by favourable changes in the dispatch of generation plants. This led to a depressive fuel adjustment factor across all consumer categories that modestly offset the combined effects of inflation and exchange rate movements.
The tariffs apply only to customers supplied by Umeme Limited, Uganda’s biggest electricity distributor. The Uganda Electricity Transmission Company Limited, which buys power from generators, transmits it and then sells to distributors, is expected to sell 92.9% percent of the energy to Umeme Limited in 2018.
The rest will be exported (5%) and sold to smaller distribution companies like the West Nile Rural Electrification Company and Bundibugyo Energy Cooperative Society.
Large industrial consumers contributed the biggest share to Umeme’s revenue of Shs1.4 trillion in 2017 with 37.6%. Revenue from domestic consumers was 27.2% of the total, medium industrial consumers contributed 20%, while commercial consumers contributed 15%. Street lighting’s share was 0.1%.
Umeme’s customers increased by 18.3% in 2017 to 1,125,291 after an additional 174,477 grid connections versus 157,270 in 2016.
Umeme said electricity sales to large industrial users increased by 9.8%, compared to 6.9% for domestic consumers, 3% for medium industrial consumers, and 5.7% for commercial consumers. Street lighting sales fell 0.7% in 2017 – which probably has something to do with the increasing installation of solar-powered street lights. Overall, Umeme’s electricity sales increased by 7.5% compared to 4.4% in 2016.
The power distributor’s after-tax profit fell 74.4% to Shs35.4bn after a change in its license reduced revenues previously earned from excess power sold. Umeme previously recorded revenues from higher-than-projected sales of electricity as part of its operating profit.
But after a protracted legal battle and out-of-court settlement, the Electricity Regulatory Authority amended Umeme’s license in May 2017 and directed such revenue to be passed through, without a return, and reinvested in the grid under supervision by ERA.
Umeme’s status as a distributor has been the subject of a lot of speculation recently following a letter by President Yoweri Museveni pouring cold water on the renewal of its concession. The president, in a memo to the energy minister, wondered about Umeme’s “mysterious investments” and “mysterious losses that should have disappeared years ago”.
Umeme has seven years left on its 20-year concession to distribute and supply electricity, signed in 2005. It recently started negotiations with the government to extend the concession period.
The regulator’s determination of power tariffs is guided by the principle that revenues from tariffs will cover “reasonable” costs and a rate of return for the transmission and distribution companies. Before the start of each year, the companies provide the ERA with a revenue requirement which includes a breakdown of costs; this information is used to assess the base tariff.
In the president’s estimation, Umeme is overstating both its investments and losses, thus keeping power tariffs higher than they should be. As part of the licence review process, the regulatory authority has hired an Indian firm to evaluate Umeme’s performance, including its loss reduction strategies and investment levels.
The evaluation is expected this June, Julius Wandera, ERA’s public relations officer, told the East African newspaper.