News New Year to start off with revised electricity tariffs
September 7, 2024
Quarterly increments expected over next four years
The Ethiopian Electric Utility (EEU) is set to levy a new electricity tariff beginning September 11, 2024, on the Ethiopian New Year. The change comes as part of the International Monetary Fund (IMF) program recently adopted by the federal government.
Ethiopian households will see tariff increments enacted every quarter beginning this month and lasting for the coming four years. The federal government is looking to gradually raise the tariff before completely lifting all subsidies by the end of the program, according to an EEU document outlining the strategy.
As it stands, an EEU client using 50 kilowatts pays 24 birr in monthly utility fees. They will see the fee rise by an average of four birr every quarter to reach an estimated 41 birr per month by the end of 2024/25. By the end of the fourth year (2027/28), the client will be paying around 92 birr each month.
Tariffs are expected to grow by more than threefold over the length of the program, with officials hoping the gradual approach will be more manageable for households already burdened by the rising cost of living.
The new tariff program also includes provisions for subsidizing low-income households. However, these households will only see subsidies applied to the increments and not the existing baseline tariff. The subsidies will also be phased out by the end of the program in four years’ time, leaving the households to bear the full burden of the new tariff.
Households using less than 50 kw will enjoy an 84 percent subsidy on the tariff for the length of the program. Clients using between 50 and 100 kw will receive a 61 percent subsidy, while those consuming between 100 and 200 kw will see 35 percent of their bills subsidized.
Households and businesses consuming more than 200 kw will not be eligible for subsidies and will have to pay the revised tariff in full beginning this month.
Officers at the state-owned EEU argue the new tariffs should have been introduced two years ago in accordance with a directive from the Fuel and Energy Authority, which mandates an electricity tariff revision every four years.
However, the Council of Ministers only approved the new tariff scheme in June following the conclusion of a study conducted by EEU and its partners. The study called for a revision to ease financial constraints in power infrastructure and service.
“The loans taken to build all of the power infrastructure, including generators and transmission lines, over the last decade have not been repaid because the existing tariffs are too low,” said Shiferaw Telila, head of EEU.
The new rates are hoped to offset the financial burdens that infrastructure development has placed on the EEU’s shoulders.
It allocated 5.8 billion birr to infrastructure development in 2021/22, but actual costs jumped to 7.7 billion birr. The same year, its investment costs ballooned to 9.4 billion birr from the planned 5.5 billion birr in light of currency devaluation and difficulties in accessing forex to import equipment. Import inflation alone pushed its expenses up by 80 percent, according to the EEU document.
The study presented to the Council indicates Ethiopia’s current electricity tariffs are among the lowest in Sub-Saharan Africa.
Shiferaw hopes to use the additional revenue from the new tariffs to make additional investments in transmission lines, transformers and other critical equipment.
Although the EEU and federal officials argue the tariff revision is being carried out based on instructions from the Council, the details of the program are included in the terms of the federal government’s recent agreement with the IMF.
An IMF document published in July indicates the government is obliged to begin implementing quarterly electricity tariff increases in September 2024.
“Power sector reforms including tariff adjustment are also vital. Achieving cost recovery in the power sector will reduce a key fiscal, financial stability, and growth risk. Adoption by the Council of Ministers of a four-year electricity tariff adjustment plan is the first step to reaching cost recovery within the program horizon, and the first tariff increase is expected by end-September 2024,” reads the document.
It indicates the power sector reforms are backed by a USD 1.6 billion World Bank project aimed at improving access to electricity.
“The adequacy of the tariff plan will subsequently be reviewed on an annual basis given prospective changes to the sector’s cost structure arising from exchange rate, inflation, and other economic developments. A revised schedule of electricity tariff changes will be adopted by end-June 2025 to ensure full recovery of the sector’s operational and debt service costs by 2028,” reads the IMF document.