Ethiopian Electric Utility recently has announced that, it is undertaking a study to revise the existing electricity tariff that contemplate the high inflation rate in the country and a new tariff is going to be introduced, though the date is yet to be determined. The rationales to increase the existing electricity tariff that was introduced in 2018, are increase in price of inputs in the market and to finance infrastructure rehabilitation.
While, increasing the electricity tariff help to attract investors to invest in electricity production and distribution and thereby, increase electricity access to citizens and business enterprises, high electricity tariff hurts businesses as it increases the cost of doing business. Affordable and reliable supply of electricity is vital for the operation of businesses.
In the past recent decades, although, access to a reliable supply of electricity is limited and frequent power outages occurred, cheap electricity supply has attracted business from local and abroad and reduced the cost of starting and running business. It is palpable that, among the factors that make the country attractive to foreign investors is relatively cheap electricity supply compared to peer countries. If the new electricity tariff is going to be too high, the country can lose its advantage in this regard and attracting foreign investment.
The Addis Ababa Chamber of Commerce and Sectoral Associations (AACCSA) believes that, if the envisaged electricity tariff revision come up with tariff rate beyond reasonable level, it will discourage businesses as it directly increases business operation cost. Businesses that are engaged in various business sectors cost will rise as a result of the new electric tariff rate, depending to businesses tariff and consumption levels. The Chamber understands that, while, it is in companies’ interest to low electricity tariffs, the cost of power shall be reasonable, especially for manufacturing industries to be competitive in local and global market and stay in the market.
In several publications and media outlets, AACCSA indicated that, the cost of doing business has strong tie with companies’ competitiveness and reducing business cost is essential to enhance trade and investment. The Chamber is very much concerned if the electricity tariff increased too high, as it impacts the cost of delivering services and production. Addis Chamber appreciates if the authority critically assesses the impact of the proposed new electricity tariff on businesses. Furthermore, it wants to remind that, this time, companies are experiencing the impact of shortage of foreign currency and finance, the COVID-19 pandemic, high inflation, shortage and raising cost of input supply, increased cost of fuel, and absence of peace and stability. Thus, the news electricity tariff rate shall not put further pressure on doing business.
Ethiopia ranked 137th in getting electricity in 2020 World Bank doing business report, which measures the procedures, time and cost to get connected to the electrical grid, and the reliability of the electricity supply and the transparency of tariffs. Besides, frequent power interruption, increasing the electricity tariff rate beyond reasonable level will further aggravate the problems of businesses and hurts manufacturing and government initiatives such as “Ethiopia Tamirt” which is means “Let Ethiopia Produce” movement and the years perspective development plan that pursue active involvement of the private sector. On the other hand, increase in electricity power tariff will force households to shift to traditional fuel sources like wood, which obviously has impact on the environment.
We suggest, therefore, the authority shall consider the keen interest and roles of the private sector in economic development and poverty reduction and specifically, the business community role in enhancing power supply in the country, which is exemplified in their materials and financial support in the construction of “Grand Renaissance Dam”. Thus, despite the increased power generation capacity of the country with direct and indirect involvement the businesses community, increasing electricity tariff require meticulous analysis of the above facts. AACCSA calls palatable policies on the cost, availability, and reliable power as this is important for economic growth and business to flourish. To fully gain the benefit of reliable electricity supply with reasonable price, the authority shall consider the implications of increase in tariff rate on businesses.