There are fears that very soon the Rwandan economy could suffocate on inflation caused by the government decision to increase the cost of electricity.
Government recently announced that the electricity tariff had gone up by 14% and 25% across board according to the sector regulator.
Experts argue that any increment of cost of electric power is very likely to erode purchasing power of household consumers or increasing cost of locally produced goods by industrial consumers thereby reducing competitiveness of Rwandan products in regional and international markets.
However, others are saying that the new tariffs are geared towards boosting the supply side of the electric power equation in Rwanda. Boosting of supply side of power by planners is seen as critical to actualising the plans for achieving universal access to power by the year 2024.
The increment is meant to make power sector investors such as utilities and independent power producers more comfortable in their operations in terms of operations, maintenance and investment pay back.
Therefore, the new increment is seen as an economic trade-off between protection of consumers on one hand and meeting investment need of suppliers by boosting sector incentives on the other hand.
Rwanda Utilities Regulatory Authority (RURA) the sector regulator in its latest circular dated 14th January 2020 says that new user tariff is meant to take effect by 21st January 2020 replacing old tariffs that came into effect 13th August 2018.
Alex Mutware the RURA General Manager for Energy, Water and Sanitation stated, “the end user tariffs were made in order to meet the required operational and investment expenditure of the utility Energy Utility Company Ltd (EUCL), mainly because of activities related to the expansion and maintenance of the network.
The increment is informed by the current drive geared towards expanding and modernising the national electric power grid network an exercise that requires huge investment outlays by EUCL and its sister subsidiary Energy Development Co Ltd (EDCL).
Both EUCL and EDCL are in turn owned by public power holding firm Rwanda Energy Group (REG)
Ron Weiss, REG CEO, acknowledged the trade-off favouring the supply side of the equation in Rwanda. He told journalists that, “Our intention is to raise funds to boost production”, but is quick to point that, “we will cut down prices by the year 2022”.
Rwanda’s energy sector overview for the next 5 years is a case study of high ambitions against challenging circumstances, according to USAID.
With high ambitions of achieving 100% electricity by the year 2024 against availability of 218 MW of installed capacity, there is need for policy makers to step up generation and distribution.
According to the international energy agency (IEA), Rwanda’s national electrification rate is estimated at 30% (12% in rural areas, 72% in urban areas) further pressing home the need for stepping up generation and distribution capacities. However, a pipeline of 127 MW from several sources has reached a financial close.
Some of the biggest challenges facing policy makers according to USAID is, “misalignment of power supply and demand, limited financing for off-grid companies as well as limited affordability of electricity solutions for rural households and businesses”.
The misalignment is informed by fact that the estimated cost of setting up a one MW power plant in Rwanda is US$1 million according to experts. In order to provide a cushion, there is the need to increase the tariffs.
In the new tariffs, residential consumers within the block of consuming between 15 to 50 Kwh per month will pay Rwf 212 up from paying Rwf 182 representing more than a 16% increment.
Block of users consuming more than 50 Kwh per month will pay Rwf 249 up from Rwf 210 representing more than 17% increment.
Hotels will pay Rwf 157 per Kwh up from Rwf 126 per Kwh representing a 25% increment. Telecoms towers will pay Rwf 201 per Kwh up from Rwf 185 per Kwh representing a 14% increment.
Industrial consumers categorized under medium industries consuming between 22,000 to 660,000 Kwh per year will pay Rwf 103 per Kwh up from paying Rwf 87 per Kwh representing an 18.3% increment.
Large industries consuming more than 660,000 Kwh per year will pay Rwf 94 per Kwh up from paying Rwf 80 per Kwh representing a 16.6% increment.
A hotelier operating a high-end outlet in Kigali city who did not want to be identified due to sensitivity of the matter told Taarifa business team; “The new tariffs for hotels is bound to increase our operating costs tremendously. Naturally, we will pass the cost the consumers. We are also aware that we are very likely to be hit harder by increments in prices of goods we need to operate our business such as cost of foodstuff and related items”.
He adds; “The effect of such increment on our costs of doing is perfect recipe for inflation even though we are informed that things are under control”.