Powering Ethiopia’s Future

Balancing Growth with Equity

Ethiopia’s recent announcement of a 10% quarterly electricity tariff adjustment is a significant step towards ensuring the sustainability of its power sector. This move, aimed at bridging the revenue gap and funding expansion projects, has the potential to bring about positive changes. However, it’s crucial to address the potential negative impacts on low-income citizens and small businesses to ensure a balanced outcome.

The government’s decision to adjust tariffs is pragmatic, given the country’s low electrification rate and the need to invest in infrastructure. By generating additional revenue, Ethiopian Electric Power can allocate funds to expand power generation capacity, improve grid reliability, and extend electricity services to underserved areas. This approach, in turn, will stimulate economic growth and create new opportunities for businesses and individuals.

It’s crucial to recognize that a blanket tariff increase could disproportionately affect vulnerable population segments. Low-income households and small businesses, which often operate on thin margins, may struggle to absorb higher electricity costs. This could lead to reduced consumption, stifled economic activity, and increased poverty. Already, low-income citizens are grappling with a significant economic burden due to the multifaceted effects of poverty and inflation. This underscores the urgent need for targeted measures to protect these vulnerable groups.

The government’s commitment to implementing targeted measures to protect vulnerable groups and mitigate the negative consequences of tariff revision on low-income citizens and small businesses deserves recognition. One practical solution is to introduce a tiered tariff structure, where firms and households consuming below a certain threshold are charged a lower rate. This has already been announced, and its implementation should be carefully assessed. Such a structure would provide some relief to low-income consumers and small enterprises while still generating necessary revenue.

Moreover, the government should strongly consider implementing targeted subsidies for vulnerable populations. These subsidies, funded through government resources and contributions from more significant electricity consumers, could provide crucial financial assistance to those who need it most. This approach would ensure that the benefits of increased electrification are shared equitably, further demonstrating the government’s commitment to social equity.

Another important consideration is the impact of the tariff adjustment on investment. Ethiopia offers the world’s cheapest electricity, which attracted investment to the country until several years ago, when the precarious peace and security situations impeded the steady growth of investment. While higher electricity costs may deter some businesses from investing in Ethiopia, the long-term benefits of a reliable and affordable power supply will likely outweigh the short-term challenges. The government can attract investment by highlighting the country’s growing economy, trainable workforce, and favourable business environment.

Promoting energy efficiency and conservation is not just important, it’s crucial. By encouraging businesses and households to adopt energy-saving practices and technologies, significant reduction in overall electricity consumption is possible. This helps to alleviate pressure on the grid. Besides, this will not only help lower consumer costs but also improve the sustainability of the power sector, making it a win-win strategy.

Indeed, Ethiopia’s decision to adjust electricity tariffs is a necessary step towards ensuring the long-term viability of its power sector. However, it is imperative to implement measures that protect vulnerable groups and promote economic growth. By carefully balancing the need for revenue with the importance of affordability and equity, the government is demonstrating its understanding of the financial challenges faced by its citizens. This approach ensures that the tariff adjustment benefits the nation.EBR

13th Year  October 2024  No. 134