Kampala, Uganda — ESI-AFRICA.COM — 19 January 2012 – Starting this week, Ugandans homes will have their electricity bills increased by 36%, following the scrapping by the government of Uganda of subsidies to the country’s electricity sector.
Energy minister Irene Muloni confirmed the scrapping of subsidies here, citing the huge bill amounting to US$500 million that the government has had to pay since to 2005.
Domestic consumers, who use electricity for lighting and electronics, have been paying US$0.16 per unit which, according to government, was subsidised by up to 60%. These customers will have to pay a revised fee of US$0.21 per unit after the scrapping of the subsidies.
Medium and large industrial users have not been spared either as their tariffs have been hiked by 38% and 69% respectively.
“East African Business Week” reports that there are fears that this could lead to a spillover effect, since manufacturers may transfer the burden onto the final consumer by hiking the prices of their products. This in turn may reduce consumption and lead to loss of jobs and shutdowns in some volatile sectors.
There are also concerns that a competitive edge may be lost to neighbouring countries since imported goods may become cheaper than locally produced goods. However, the minister dismissed those fears saying that her ministry had already interfaced with the industrialists and explained to them the reasons for the tariff increase.
“If you look at the money we have spent on subsidies, that money could easily have constructed another big dam or even two smaller ones. We have explained to the industrialists that it is better to pay extra and in the end have reliable power supply,” Muloni said.
She told reporters that the money would be freed up to finance the expansion of Uganda’s shrinking generation capacity.
“The government has therefore decided to scrap subsidies as the freed up money will be used to finance the implementation of other critical government programmes,” she added. She did not specify which programmes the government would prioritise, apart from financing the increment in power generation. The subsidy is paid to Uganda Electricity Transmission.