Power tariff increases to lead to business closures
Publication date: Wednesday, 10th May, 2006
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Ugandans can look forward to a wave of business closures and a sharper dip in economic growth than officially acknowledged due, in part, to the numerous power outages compounded by the recent announcement of new, higher power tariffs, observers say.
On Monday, the Electricity Regulatory Authority (ERA) announced it would raise power tariffs at the beginning of June by an average of 37% with heavy industry bearing the brunt of the hike.
âIn the past, heavy industry has had the biggest tariff subsidy of any segment and they still do,â ERA boss, Dr. Frank Sebbowa said.
âAs constraints of income affect the resource envelope, we are now going into spending and get the hydro-electric power projects online quickly.
âThe savings from reduced subsidies will help us in this way,â he said.
Ugandaâs hydropower capacity of 380 MW has fallen to 135 MW because of the extended regional drought. Fifty mega watts of thermal generators worth $12m were installed last year, earning the Government almost $40m more to support the generation of a further 50MW.
The Government plans to increase thermal generation by an additional 100MW by next year.
This is on top of building two more hydropower plants in Bujagali and Karuma.
âThere is no power. We are paying through the nose for diesel,â Uganda Manufacturers Association chairman, Abid Alam, said.
âFuel, transport and now power costs are up. There is going to be massive business closures in the next few months. In fact, it is already happening,â he said.
The finance ministry in its latest budget projection sees economic growth slowing to about 4.9% from last financial yearâs 6.2%, resulting from drought and power shortages.
Earlier this year, economists had anticipated a 2% point drop in GDP growth due to drought and power outages, a more drastic decrease than the Government now acknowledges, but analysts have grown more pessimistic.
âIt will be more adverse,â said Makerere University Economic Policy Research Centre (EPRC) fellow, Lawrence Bategeka, on the economyâs growth prospects.
âThose who say growth will be over 4%, are overestimating,â he said.
Bategeka said in addition to the drought and more frequent power cuts, the rising international oil prices will aggravate an already bad situation.
âOur biggest challenge is managing perception and expectation because these drive the economy.
If the Government can be seen to be getting things working and moving, then the economy may not suffer as an adverse effect as we think,â he said.
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