January 12, 2012 / 11:21 AM / 7 years ago

Uganda removes power subsidies, to expand generation

* Move likely to lead to public outcry

* Savings to go to improving power production

By Elias Biryabarema

KAMPALA, Jan 12 (Reuters) - The Ugandan government announced on Thursday it had abolished electricity subsidies paid to power generators to cushion consumers, a move that will see tariffs rise by an average of 42 percent.

Energy minister Irene Muloni said the money freed will be used to expand generation capacity in east Africa’s third largest economy.

“Government has spent a total of 1.53 trillion Ugandan shillings ($623.22 million) since 2005 on subsidies to the electricity sub-sector,” Muloni said.

“This level of subsidy is not sustainable. Government has therefore decided to eliminate subsidies to the electricity subsector.”

Muloni did not say how much the government would save by lifting the subsidies.

The announcement is likely to provoke further public fury in a country where traders and shopkeepers are already on a three-day strike over sky-high interest rates charged by commercial banks.

Oil-producing Nigeria is at present grappling with a countrywide strike that has entered its fourth day after the government cut fuel subsidies.

Uganda was also last year rattled by a series of opposition-led, violent demonstrations over soaring cost of living caused by a sharp surge in inflation which hit an 18-year high of 30.4 percent year-on-year in October before slowing in November.

The Ugandan government started subsidising electricity consumers after procuring emergency thermal generators to curb a sudden power supply crisis.

At the time electricity production had plummeted after drought reduced the amount of water in the country’s main hydro generation plant at Jinja, in eastern Uganda.

“The money freed from the subsidies will be used to finance the implementation of the other critical government programmes...for example construction of the 600MW Karuma hydropower project,” Muloni said. ($1 = 2455.0000 Ugandan shillings) (Editing by George Obulutsa and James Jukwey)

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