The Electricity Regulatory Authority (ERA) has approved a three per cent increment in electricity prices, which would see domestic consumers pay an additional Shs 13.5 this financial year.
The power tariff for domestic users will increase from Shs 518 last year to Shs 531.5 per unit to be paid in 2015. The prices for the first 15 units have stayed at Shs 150. The new tariffs are more than what the power distributor Umeme had asked for in its application to the industry regulator in November.
Umeme wanted the price for domestic users to increase from Shs 518 per unit to Shs 520.7. Meanwhile, the commercial users will pay an average of Shs 484.6 and it will shoot to Shs 602.5 during peak hours this year. Umeme had requested that the price for the commercial users be put at Shs 477.4 a unit.
Julius Wandera, the public relations officer of ERA, told The Observer yesterday that Umeme's application is just "a wish list" which was only intended to earn a return on the power distributor's investment. It does not take into consideration other variables factored in to generate and get the power to the final consumer.
"In that tariff, we have to add in the budget of UETCL, costs of Eskom and UEDCL," he added, explaining that it was normal occurrence of the varying figures.
The costs of running dams like Bujjagali are also included, he added.
"It is after we have looked at the whole pool of all these things that we come up with the final average price."
ERA estimates the exchange rate to be at Shs 2,779.9 against the dollar for 2015. If the shilling weakens further, power tariffs are likely to rise again since players spend more money to purchase dollars to import machinery.
Another key determinant of power tariffs is fuel prices. At the moment, the price of oil is below $50 per barrel, which should have seen a drop in the power tariff.
Wandera, however, said that while lower oil prices could have helped, the exchange rate depreciation was the biggest factor that has pushed up the tariff. The shilling has depreciated by about 15 per cent from January 2014. But the price of oil has fallen by close to 50 per cent since June 2014.
"Even a single drop of about Shs 10 against the dollar can lead to a deficit of about Shs 80bn," Wandera said.
ERA estimates oil prices to trade at $80 a barrel this year. The central bank blames speculators and the strengthening of the US economy for the shilling's depreciation. Electricity tariffs are subject to quarterly reviews by the regulator.