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Why Power Tariffs Are To Go Up As US Dollar Continues To Gain Weight Against Uganda Shilling

Ugandans should get ready to experience an increase in Electricity Tariffs as the Ugandan Shilling dangerously continues to lose its strength against the US dollar!

Yes, the situation is very likely given how the US dollar has in the recent past gained more strength leading to a hike in almost every commodity in the banana republic.

For example, everyone now knows it that soap, rice, maize flour, beans and other essential commodities have doubled in their original prices since June and the trend continues to go upwards.

Currently however, it’s only electricity tariffs that have remained relatively low in the last 3rd quarter but our inspectors revealed that, even this commodity is no doubt going to be hiked as adverse macroeconomic factors continue to pound the Ugandan economy and shilling for that matter!

DETAILS

Every year, Electricity Regulatory Authority (ERA) comes up with what it calls Annual Base Tariffs whose determination is based on the prevailing US dollar rate.
A close analysis of the recent performance of the shilling against the US dollar, indicates that our Ugandan currency is terribly becoming weak and weaker and yet the dollar on which the tariffs are based keeps gaining ground.


For example, looking at the past three years 2020, 2021 and now 2022, it is clear that the shilling has been a bit strong but in the past three months, it has lost badly.
ERA announces it’s Annual Base Tariffs in December (at the end of last quarter) of the year and that for the case of last quarter 2020, the dollar was selling at Shs3677.6.


However, by the first quarter of 2021, it had slightly gone up to 3699.2 but gradually dropped to as low as Shs3535 by December 2021 (read last quarter) hence the lower electricity tariffs Ugandans enjoyed at the time!
This situation continued throughout the first and second quarters of 2022 (January-June) with a dollar trading at as low as 3539!


In a dramatic turn of events however, in the last three months since June, the dollar picked up and took off from the Uganda shilling at an hypersonic speed in the third quarter hitting a record 3810.74.
“The Uganda shilling lost weight against the USD from Shs3564.09 used in determination of the 2022 annual base tariffs to Shs3810.7 as at August 2022. This represents a depreciation of 6.92%. Around the same period, the Core Consumer Price index (according to UBOS) increased from 115.35 for November 2021 to 122.87 for August 2022 representing a 6.52% hike in inflation” says an inspector.

Besides inflation, the international fuel prices for crude oil for August 2022 was recorded at USD 117.72 per barrel compared to USD80.37 per barrel used in the determination of the 2022 annual base tariffs. This therefore, represents a 46.47% surge in international oil prices from the base period!
Energy experts now suggest that since ERA determines tariffs basing on the dollar rate, the rise is definitely going to force the regulator to increase power tariffs to be able to meet it’s obligations.


“ERA always puts into consideration mainly three things including Inflation rate, exchange rate and fuel prices at the international market. The regulator considers macro-economic factors as part of the tariff review. Currently, there’s an adverse movement in the macro-economic factors” an inspector knowledgeable on power issues said.


Already, other sectors like Immigration under ministry for internal affairs, has reported a drop in issuance of passports citing lack of materials which they import. And because much of Uganda’s electrical equipment like transformers, turbines, rotters among others used in power generation, distribution and transformation are imported, the rise in fuel prices and strength in the dollar are going to force the regulator to raise the prices in order to meet the costs involved.


“First of all, the infrastructure they (ERA) install on the network is not manufactured in Uganda. We don’t have it here. They import them. Therefore, it serves no purpose buying a transformer at double the price and sell it at a lower price! The best thing to do is for ERA to increase the tariffs but maintain a stable supply of power. This is what is most likely going to happen and very soon” observed barrister Peter Magomu who’s knowledgeable on energy matters.
Watch this space!!

HENRY MULINDWA

The author HENRY MULINDWA

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