East African Business Week

KAMPALA, UGANDA - Development partners have backed the move by Uganda's Ministry of Energy and Mineral Development to remove Government subsidies on the electricity sector.
Donors contend that removal of subsidies will not only enable Government save money for other needs, but also reveal the actual cost of power supply in Uganda.
While the move will bring money to the Government coffers, removal of subsidies from one of the sensitive sectors will mean that consumers will have to dig deep into their pockets as power will shoot up.
Consumers current pay Shs385.6 pert unit for domestic consumers. However, reports indicate that the actual cost power is Shs847.6 per unit. That means that Government pays Shs462 for a unit.
Donors attending the Joint Sector Review Forum organised by the Ministry of Energy last week argued Uganda will have no option but to raise the electricity price per unit levied on consumers to compensate for the high operations and investment costs
"The Government should move forward to cost reflective tariffs. The subsidy it pays mainly benefits those who have the money to pay for electricity," the German Ambassador to Uganda, Klaus Dieter Duxmann said.
"We know how painful raising the tariffs will be especially in the context of high inflation"
Reports show that Government paid some Shs600bn ($240m) in power subsidies in the last Financial Year.
Electricity Regulatory Authority (ERA) a body responsible for license generation, transmission and distribution of electricity in Uganda, has also called for the need to increase power tariffs saying it will mitigate the effects of the depreciating Uganda shilling, exchange rate and fuel costs.
ERA argues that volatile fuel prices that increased from US$60-70/barrel at the beginning of 2010 to US$120 in the first half of 2011, Non Variable Tariffs (fixed) and constrained hydrology have also led to increase in government subsidy requirement.
"Subsidies will not benefit anyone," the ERA Director Economic Regulation, Dr Benon Mutambi, said.
"The upper middle classes as well as enterprises receive almost all the direct benefit of the power subsidy, which is difficult to justify from a public policy perspective".
Statistics show that electricity peak power demand in the country stands at 445MW, shoulder demand is at 350MW and off-peak demand at 300MW.
ERA says the commissioning of projects like Bujagali hydropower project will reduce sector costs from Shs1 trillion ($400m) to Shs818bn ($327m),
While the move to increase electricity tariffs may be a plus for the Government, consumers are jittery on what will happen if the initiative is effected. Analysts argue that Uganda may have to speed up her projects that have lagged behind for it to mitigate the ever increasing costs.