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Tanzania grapples with higher electricity costs

Source: Thomson Reuters Foundation - Tue, 28 Jan 2014 10:00 GMT
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Residents walk past an electricity substation at Ubungo in Dar es Salaam, Tanzania. THOMSON REUTERS FOUNDATION/Zuberi Mussa.

DAR ES SALAAM, Tanzania (Thomson Reuters Foundation) — When Omar Mganga bought his latest stock of pre-paid electricity coupons via his smartphone, the confirmation message came as a shock. On January 1, the country’s state-run power company increased its rates by 40 percent, meaning Mganga got far less energy than expected for his cash.

“This is daylight robbery! How on earth can they increase the tariffs that much within a short period of time? I don’t think I can manage,” complained the 37-year-old barbershop owner.

As increasingly variable rainfall cuts hydropower production, TANESCO, Tanzania’s state-run power utility, has substantially hiked electricity tariffs, a move experts fear could lead to greater deforestation as cash-strapped power users turn to wood and charcoal for cooking.

Newly discovered reserves of natural gas in Tanzania could eventually help meet rising power demand and lower the use of polluting oil-powered generators. But the loss of hydropower capacity threatens to raise the country’s emissions of climate-changing gases, while making life much harder for energy consumers.

Mganga, whose shop sits on Shekilango Road in the sprawling Sinza suburb, is among thousands of electricity customers in Tanzania who are bearing the brunt of higher power tariffs, with the effects spreading into every sector of the economy.

Tanzania’s Energy and Water Utilities Regulatory Authority (EWURA) announced a 40 percent increase in electricity tariffs, and an almost 16 percent increase in the price of cooking gas cylinders, effective January 1, 2014, with the aim of bailing out the firm from huge losses caused by higher operating costs.

“The proposed tariff adjustment will enable the firm to meet operational costs and increase capacity needed to meet system peak demand,” said Felix Ngalamgosi, EWURA’s director of regulatory economics.

According to EWURA, ordinary domestic users will now pay 100 Tanzanian shillings (about 6 cents) per unit of electricity, up from 60 shillings before. This means that a government clerical worker receiving a minimum wage of 150,000 shillings ($99) per month will have to set aside about 30 percent of his salary to cover energy costs.

According to EWURA, power consumers such as medium-sized manufacturers whose demand exceeds 7,500 units per month will now pay 205 shillings per unit, an increase of 55 percent.

TANESCO’s customers who are connected to the high-voltage supply, including those running factories and mines, and who use 66,000 units and above will pay 159 shillings per unit, 50 percent more than before.

INFLATION RISING

To cope with his spiralling running costs, Mganga has had no choice but to raise the prices at his salon. He now charges 5,000 shillings ($3) for a head and beard shave, an increase of 2,000 shillings.

“I don’t mean to chase away customers, but there’s no way out. Our landlord has just increased his rent. If we don’t do this how are we going to pay him?” Mganga asked.

He has already lost a significant number of his customers, he said.

 “It is a painful reality of life. I hope some of them will come back,” he said.

Many Dar residents have expressed anger over the rising power tariffs and urged the government to disband EWURA, the regulatory agency, for failing in its mandate to protect customers from unreasonable fuel, water and electricity price increases.

“Let’s dissolve it. We are fed up,” said Daniel Kabati, a resident of Dar’s Kawe neighbourhood. “We are being punished with ridiculously high energy costs almost every year.”

Analysts say the rise in energy costs will hurt businesses as well as trigger inflation.

According to the Confederation of Tanzania Industries (CTI), the increases will hurt small and medium enterprises because electricity forms a big share of their production costs.

“It is too early to tell what will happen to manufacturers, but obviously the effect will be huge since the cost of production for locally made products will go up,” said Hussein Kamote, CTI’s director of policy and research.  

HYDROPOWER CHALLENGES

Tanzania’s electricity sector faces many challenges. Hydropower, which constitutes 71 percent of electricity generation, is frequently crippled by droughts caused by changing weather patterns.

Faced with shortages, TANESCO has increasingly been forced to use costly emergency generation plants, plunging the company into the financial doldrums. It spends about $3.3 million a day on heavy furnace oil to produce 365 megawatts (MW) of electricity from the emergency plants, but its daily revenue is only $1.4 million. The government is covering the extra costs.

Despite the protests by consumers, the government maintains that Tanzania still has the lowest power tariffs per unit in the region.

“Tanzanians pay less for power because the government subsidises the remaining cost,” Sospeter Muhongo, the country’s minister for energy and mineral resources, said in an interview with a local radio station.

Tanzania recently discovered huge reserves of natural gas in excess of 43.7 trillion cubic feet (1.2 trillion cubic metres), which has the potential to substantially curb electricity production costs when it becomes available for use. According to the energy ministry, that will happen in the next 10 years.

“With natural gas, we can generate up to 3,500 MW of electricity. Electricity problems will be history,” Muhongo said during a public symposium held at the University of Dar es Salaam.

FOREST THREAT

Environmental experts, however, worry that for now the rise in electricity and cooking gas tariffs is likely to exacerbate the already alarming rate of deforestation.

Charcoal and firewood comprise about 90 percent of energy used for cooking in the country. The annual supply of wood needed to meet the demand for charcoal is about 30 million cubic metres.

Meanwhile, a 15kg cylinder of cooking gas now costs 62,500 shillings ($39), an increase of 8,500 shillings.

“The rise in power and cooking gas tariffs will exert more pressure on forests as people seek to use more charcoal and firewood for energy purposes,” said Felician Kilahama, a retired senior conservationist with the Ministry of Tourism and Natural Resources.

“If we are to protect forest ecosystems, the government should have accorded high priority to forest protection and conservation, and where necessary provide subsidies to allow many households to afford alternative cooking sources of fuel,” Kilahama said.

Kizito Makoye is a journalist based in Dar es Salaam.

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