How Tanesco’s new proposed tariff will impact your budget

Dar es Salaam. As State-owned power utility, Tanzania Electric Supply Company (Tanesco) seeks a 90 per cent power tariff rise, consumers falling into the category of D1 would be the most affected if the application is granted.

A scrutiny by the Business Week has established that for clients who consume over 50 units of electricity per month, will be required to pay Sh467 per unit, if a 71 per cent tariff adjustment for this category is granted.

To put things into perspective for a family that consumes anything above 50 units but still within the domestic consumption category, you will need not less than Sh23,350 to light your house – far above the Sh13,650 budget applied prior to the proposals.

Should the proposals sail through unchanged, you will also be required to pay arrears dating back to October 1, this year, according to the September 2013 tariff review proposal submitted to the regulator.

This is because the new rates were meant to become effective last month October 2013.

But, these tariffs will only last for three months before Tanesco imposes further increase in January, 2014, whereby domestic users – consuming over 50 units per month – will need to pay eight per cent more. Tanesco is proposing increases at various rates ranging from 34 to 90 per cent on tariffs consumed by customers in various categories ranging from domestic use to normal commercial as well as industrial utilisation.

According to the proposals, once approved, the tariffs will help the state-owned utility firm to fund its operational costs, capital investment programme and to demonstrate its bankability to donors offering concessionary loans/grants among others. Approving the proposals will also help Tanesco to pay its outstanding debts – currently valued at Sh449 billion.

“Tanesco has always been under-recovering for every unit sold including the period since our last tariff application in 2011; this has resulted in non fulfillment of contractual obligations and increased creditors outstanding to Sh449.0 billion by July 2013… If tariff is not granted, this situation may lead to legal action, tarnish our business image and goods and service providers refrain to do business with us,” reads a statement in the proposal.

No way

Though Tanesco seems to have a concrete ground to increase tariffs this time around, the going may not be that easy.

The Energy and Water Utilities Regulatory Authority – Consumer Consultative Council (Ewura CCC) says it will use all the available avenues to oppose the proposed tariff increases.

Established under section 30 of the Ewura Act, 2001 Cap 414, the Ewura CCC is entrusted with the responsibilities of safeguarding and protecting the interests of consumers of services like water, electricity, petroleum and natural gas.

Its executive secretary, Mr Godfrey Mmari, told BusinessWeek earlier this week that should there be no consensus at public dialogues to be conducted between November 15 (tomorrow) and Friday next week (November 22), then the council will take the matter to the Fair Competition Tribunal.

“We are still studying the documents submitted by Tanesco to Ewura. These are technical documents which need thorough and in-depth analysis before issuing a statement. We will work on them and submit our report during the public hearing,” says Mr Mmari.

According to him, Tanesco’s proposals for tariff increases are subject to a number of issues which call for critical analysis to verify their justifiability. This, he said, should also put into consideration, the purchasing power of various customers ranging from domestic users, commercial users as well as their industrial counterparts.

In its strong worded proposal, Tanesco notes that the last time the firm did well was in 2009 when it registered a profit of Sh40.157 billion. Since then it has been registering losses ranging from Sh47.312 billion in 2010 to Sh43.427 billion in 2011 while the 2012 loss is projected at Sh283.338 billion – largely due to higher operational costs than revenue collected due to disparity between running costs and revenue accrued from electricity prices.

It was once estimated that it costs Tanesco Sh359 to produce a single unit of electricity, which it then sells at a much lower price than the production cost.

This, however, might not as well go down with the consumers’ body. According to Mr Mmari one also needs an in-depth analysis of the factors behind high running costs that do not go in line with what is actually garnered.

“Running costs are subject to several factors such as inefficient collection of debts, mismanagement of revenue, ineffective cost accounting, inefficient human resource management and other factors. All these must be explored when one wants to reach a proper decision for tariff increase,” he says.

Yes, tariffs are lower

At least for the first time in the history of arguments pertaining to electricity tariffs in Tanzania, consumers are now able to admit that rates are lower in Tanzania than they are in other countries within the region. It is lower than tariffs in Kenya and in Uganda though Ugandan manufacturers may be at an advantageous position.

In Uganda the cost of a single unit of electricity is Ush1000(Tsh628) or USD 0.40 cents – far much higher than in Tanzania.

However, in Uganda, the government subsidises electricity to big and medium consumers by paying 82 per cent of the cost of a single unit, which amounts to Ush820 ($0.33cents). Thus, industries in Uganda and medium scale users pay only Ush180 (Tsh109) or $0.07cents per unit.

Similarly, in Uganda domestic households and small scale businesses pay Ush 385 (Tsh235) of the total cost of a single unit, while the government pays Ush615 (Tshs380) as subsidy to ease the impact of electricity as well as enabling the Uganda Electricity Board to operate efficiently.

In Tanzania, medium scale users and domestic households pay Tsh Sh132 and Tshs 273 respectively. These rates are still lower than the subsidised Ugandan rates paid by consumers.

But not reason for increasing

However, according to Mr Mmari, comparing with other countries can in no way be the basis of increasing tariffs.“There are a number of factors such as operating business environment, level of competition in the energy sector, salaries and other incentive structures, organization structure of power utility companies, quality of services and others. I could explain to you the detailed information but this issue is still premature,” he said.

He says come November 22, the Ewura-CCC will come with a clear statement of consumers’ stand on that sensitive issue.

These sentiments were echoed by the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) Mr Peter Chisawilo.

“It is not a question of price…it is the quality that matters to businesses,” he told BusinessWeek.

All set for public dialogue

According to Ewura director of economic regulation, Mr Felix Nyamlagosi, the authority will collect public views via stakeholders’ dialogues to be conducted in Mwanza and Shinyanga on November 15, Bagamoyo on November 20 and Dar es Salaam on November 22.

Mr Nyamlagosi said that apart from those stakeholders’ meetings, the regulator is also calling upon Tanzanians to submit their views regarding Tanesco’s proposals through writing to Ewura.