By Allan Odhiambo,  BusinessWeek Reporter
Nairobi.  The investment profile of the East Africa common market is coming under focus for sharp increases in electricity tariffs that threaten to escalate the cost of doing business.

Policy changes in Tanzania and Uganda have seen the cost of power climb by 40.29 and 42 per cent respectively starting this week.

Electricity prices in Kenya are also anticipated to rise by an average 26 per cent should the Energy Regulatory Commission (ERC) grant sole distributor Kenya Power the authority to increase tariffs.

The expected surge in electricity charges could further stoke inflation, raising the cost of doing business in the region when investors are scouring the ground for opportunities in the expanded common market. “This will be a disadvantage for the common market because energy is a key part of investment,” East African Community (EAC) Affairs PS David Nalo said.

Tanzania’s energy regulator on Thursday approved an electricity price increase of 40.29 per cent for the loss-making Tanzania Electric Supply Company, which had sought 155 per cent tariff increase to revive profit margins and offset rental charges from independent power producers.

The tariff increase takes effect from January 15, but the Energy and Water Regulatory Authority said it would review power prices again after six months.

In Uganda, the government also last week abolished electricity subsidies paid to power generators to cushion consumers, a move that will see tariffs rise by an average of 42 per cent. The new tariffs will be effective from January 15.

Energy minister Irene Muloni said that the money freed would be used to expand generation capacity in the country.
“The money freed from the subsidies will be used to finance the implementation of the other critical government programmes...for example construction of the 600MW Karuma hydropower project,” Ms Muloni said.

In Kenya, the implementation of the tariffs approved by ERC could come soon when a grace period handed to cushion consumers from high cost of living comes to an end. The new rates were expected to come into effect in July 2011 but were temporarily shelved amid sharp rises in inflation.

Under the proposed tariff regime, households consuming between 51 units and 1,500 units will pay KSh11.79 per kilo watt hour (Kwh) from KSh8.10 per Kwh while those consuming above 1,500 units will pay KSh22 per unit from KSh18.75.

These expected cost measures across the three main EAC economies are expected to trigger shifts in the investment profile of the region that only recently adopted a bigger common market arrangement with a combined GDP of $79.2 billion and a population of about 133 million.

Most investors base their decisions on the cost of doing business in target markets and factors such as the cost of energy play a key part. Energy has a direct impact on the cost of production, which determines the level of return on investment.

Manufacturers in Kenya said the review in power tariffs by Uganda and Tanzania could work in their favour. “The reviews could be good news for us in Kenya because we have been disadvantaged by high power bills when our competitors in the neighbouring countries thrived on artificial tariffs, “Mr Vimal Shah, the CEO at Bidco Oil said.

Add this page to your favorite Social Bookmarking websites