The Ethiopian government has completed a comprehensive study on electricity tariff reform and submitted it to the Petroleum and Energy Authority. This move aims to recoup the costs of electricity provision in the face of the declining purchasing power of the dollar globally.
Ethiopia’s electricity sector, which requires significant foreign exchange to expand its services, has struggled to meet its needs due to the country’s current debt situation. The sector has not seen a tariff reform in the past 12 years, despite a partial reform in December 2018. Although this reform helped reduce some debt, it was insufficient to address the sector’s financial pressures.
Alemayehu Mengistu, the Director of Financial Administration for Electricity at the Ethiopian Electric Power (EEP), highlighted the financial strain on the country’s two main energy suppliers. He emphasized that the decline in the dollar’s purchasing power is a significant issue since most essential goods are imported. Alemayehu noted that if the tariff is reformed, there is a potential to increase the country’s electricity consumption from 55% to 74%. However, the sharp decline in the dollar’s value indicates that more funds are needed.
The steady growth in foreign exchange rates has adversely affected the construction of power generation, transmission, and substations. Approximately 85% of the country’s power transmission projects and 40% of power generation projects require foreign currency, making the sector highly vulnerable to global financial fluctuations.
This week, EEP and Ethiopian Electric Utility (EEU) discussed the tariff revision recommendations with stakeholders at the Adwa Museum Collection Hall. The need for reform is underscored by the average annual loss of 26 billion birr that EEP has incurred for operations and maintenance due to the outdated tariff system implemented in 2018.
The electricity tariff has increased from 6.3 billion birr to an average annual increment of 5 billion birr, reaching 29 billion birr today. Over the past four years, the company has seen an average annual revenue growth of 5 billion birr. However, despite this growth, the sector is losing an average of 26 billion birr annually due to construction, operation, and maintenance costs.
Moreover, Ethiopian Electric Power’s debt constitutes 50% of its current capital of 627 billion birr. The obligation to repay this debt is a driving force behind the government’s decision to implement the necessary tariff reforms.
The government’s reform efforts are seen as a last resort to stabilize the electricity sector and ensure its sustainability amid the challenges posed by the fluctuating global economy.
