The Ethiopian Electric Utility (EEU) emphasizes that the electric tariff should be twice or more than twice the current tariff for the EEU to be profitable.
“The current tariff in Ethiopia is amongst the lowest in Africa, and is far below the cost of electricity generation,” said, ShiferawTelila CEO of EEU, the state agency engaged in selling electric energy.
According to the CEO, the existing electric tariff lays on 0.045 dollar /4.5 cent/ per kWh while the average rate in the world is between 0.08 dollar /8 cent/ to 0.1 dollar /10 cents/.
“Our tariff should lay between 0.08 dollar /8 cent/ to 0.1 dollar /10 cents/ to be financially stable for the company,” said Shiferaw.
The CEO also indicated that the service is conducting a study to revise the current tariff to support its financial stability and access to finance for projects in order to improve its services. The current tariff was approved four years ago in 2018 considering the inflation and cost of living at the time, according the CEO and the new proposal is under preparation to make it a timely tariff revision. Once it is completed, it will be submitted to the council of ministers, explained Shiferaw.
“Low prevailing electricity tariffs have saddled the country with large debts and have threatened the credit worthiness of the government-owned power company,” said the CEO, adding, “It is difficult to boost electric access coverage and improve service delivery as the utility is not able to meet the societies’ energy demand with the current tariff it charges to consumers.”
“The electricity infrastructure projects require substantial amounts of capital,” Shiferaw underlined.
EEU during the last 2021/22 fiscal year had generated 20.94 billon birr in revenue. This was as indicated on Thursday August 18, 2022 during a press conference on the annual performances of the power company by the CEO who showed that the company had achieved 88 percent of its target.
From its plan to electrify 425 rural cities in the budget year, the enterprise achieved only 48 percent of its plan which is 204 cities. EEP’s plan to get 1.2 million new customers over the country including Tigray has achieved only by 32.84 percent getting 367,466 new customers making the total to 4.3 million customers.
As the CEO indicated, as a result of the TPLF attack in Amhara and Afar regions, the enterprise has lost more than 1.24 billion birr. As disclosed, about 87 percent of the damage and loss was reported in Amhara region while the rest was in Afar region.
The power utility company has planned to generate 33.5 billion birr in revenue from electricity sales, 43.1 billion birr including other sources and targets 1.2 million new customers. As the CEO highlighted, increasing customers, efficiency, and overall market is atop the company’s agenda. Shiferaw also pointed out that the firm plans to electrify 160 rural towns and build 27 new mini-grid solar projects.
EEU which is a customer of Ethiopian Electric Power (EEP) is providing electricity for the public that it buys from EEP under the power purchase agreement (PPA).
Expanding electricity access and securing reliable energy services will be fundamental to ensuring Ethiopia meets its growth and poverty reduction ambitions. Future energy demand is projected to increase dramatically because of rapid growth in population, the economy, urbanization and access to electricity needs.
The Ethiopian government has started to make major investments in the power sector, with two energy policy programmes in place: the National Electrification Programme (NEP II) and the Power Sector Reform bill. The NEP aims to achieve 100 per cent electrification by 2025, through on-grid and off-grid solutions. By 2025, 65% of the population will be grid-connected, with the remaining 35% relying on off-grid electricity. The grid will be extended to reach 96% grid connections by 2030. There is also a target to increase generating capacity by 25,000MW by 2030, comprising 22,000MW of hydropower, 1,000MW of geothermal and 2,000MW of wind.
Electricity tariffs must double to sustain profits: EEU
PPP set to flourish under new direct negotiations decree
The public private partnership (PPP) proclamation faces revision on the aim to award projects through a direct negotiation manner besides the current open bidding process.
On its 10th regular session, the Council of Ministers approved the amendment for the PPP 1076/2018 proclamation which was issued in 2018.
On the aim to expand the development path through different instruments and on the objective to expand public service activities, to reduce project delays and cost overrun and to increase the utilization of resources from the private sector on public services; the government issued the first PPP policy in August 2017 which was followed by the proclamation.
The proclamation that was ratified about four years ago was issued after massive studies and legal document development through the Ministry of Finance (MoF), which is the higher body to follow up on the PPP Directorate General which was formed under the proclamation to carry out the day to day activities of PPP which is to formalize private sector involvement through public projects for the benefit of both sides.
Under the PPP; efficiency on project handling, innovation, and knowledge transfer and using alternative financing to reduce government project financing has been stated as the pillars.
On its preamble, the proclamation stated that it is desirable to establish a favorable legislative framework to promote and facilitate the implementation of privately financed infrastructure projects by enhancing transparency, fairness and long-term sustainability, to improve quality of public service activity, and to maintain macroeconomic stability by reducing growth in public debt.
It added that it has become necessary to further develop the general principles of transparency, economy and fairness in the award of contracts by public entities through the establishment of specific procedures for the award of infrastructure projects.
At the cabinet session held on Saturday August 6, PPP was stated as a vital instrument for developmental projects since it is one of the ways out to elevate challenges that are observed on the macro-economy particularly on foreign currency supply for projects.
And now, it is said that to attain the stated goals, projects shall be implemented on direct negotiation which shall be created via economic diplomacy with states or foreign investors.
However, the current directive does not support to approve projects in direct negotiation approach. According to the cabinet, that is why the amended proclamation has been drafted for approval that will be ratified by the parliament.
The existing proclamation article 19, sub article one, stated that except as otherwise provided for under this proclamation; all projects shall be procured through an open bidding process with prequalification.
“In procuring and awarding a Public Private Partnership Agreement to a Private Party, the Directorate General shall be guided by the principles of transparency, free and fair competition and equal opportunity,” sub article two of the same article added.
Under the new revision, the government shall award projects for interested parties on negotiation or direct approach.
Recently, the PPP has garnered investment interested for parties to be involved in health sector development; for an integrated diagnostic center (IDC).
Experts who know the area said that there are demands from the private sector to invest on projects through PPP on direct handling scheme.
So far until last year, 23 projects have been identified under PPP from over 100 proposals, while from the selected project some shall not be executed under PPP as per the recommendation that came from detailed studies. Roads, energy, housing, and health are included on the selected projects.
Capital’s effort to get further information from the PPP DG or MoF was unfruitful.
NBE anchors stance on hard currency surrender
The National Bank of Ethiopia (NBE) emphasizes that it will never revise the 70 percent hard currency surrender directive unless the global situation and inflow disbursement shows improvement.
Yinager Dessie, Governor of NBE, signaled that the central bank does not have any intentions to revise the directive that was amended in the beginning of the year unless and otherwise situations are improved.
“The main motive of the amendment of the directive is to alleviate pressures occurring from external and internal sources,” he told Capital.
He cited that the price of petroleum and fertilizers has climbed to more than double.
“In the past, our expense was not more than USD 500 million to import fertilizer but that narrative has changed as we consumed USD 1.2 billion during the past budget year,” the Governor explained.
He added that in relation to the Russia-Ukraine conflict, price spikes had occurred on basic commodities to which government is work thoroughly on to ease the burden on Ethiopian consumers.
“To mitigate the inflation, we have procured edible oils, wheat and we are on the process of buying sugar. The price of these products have spiked in relation to the Russia-Ukraine conflict that has gradually impacted the hard currency resource of the country. So to manage the burden, banks have to share the foreign currency with NBE,” Yinager said, adding, “In general the foreign currency that flows to NBE is allocated for import petroleum, buying of medicine and other basic needs or to settle the foreign debt.”
“We are importing strategic commodities from the foreign currency we secured,” he explained, adding, “the main thing is that if the inflow disbursement, which is loan and assistance, shows improvement and the global situation becomes stable, the export earnings will increase and the hard currency distribution will be at ease.”
The retention and utilization of export earnings and inward remittances directives no. FXD/79/2022 which was amended and made effective on January 6, on its article 4.1 stated that banks are required to surrender 70 percent of the foreign currency earnings from export of goods and services, private transfer and NGO’s transfer to the NBE.
Article 4.2 stated that exporter of goods and services and recipients of inward remittance shall have the right to retain 20 percent of their export earnings in foreign currency indeterminately in a retention account after the deduction of 70 percent surrender requirement from the total earnings. It added that the remaining 10 percent shall be surrendered to the respective bank.
The prior directive that was revised early last budget year gave a right for NBE to take half of the foreign currency earnings and the remainder to exporters and banks.
However, experts argued that the retention directive has affected the export business since it does not motivate both exporters and financial firms in engaging and expanding their businesses.
In the past budget year unlike the previous experience, the government’s inflow of foreign currency which mainly comes from global partners in the forms of assistance and loan has almost dried out. Nonetheless, the debt settlement commitments have been concluded smoothly.
Following the conflict eruption in the northern part of the country, global partners, mainly western nations or organizations driven by them froze their pledged funds to put pressure on the central government against national interest.
Dashen optimizes the cloud to widen digital financial reach
Dashen Bank announces another digital transformation by implementing IBM’s Cloud Pak for Integration on Red Hat Open Shift, to modernize its cloud integration architecture.
Dashen, a pioneering bank which introduces different technology based financial activities, said that the collaboration with IBM will help the bank expand its ecosystem by accelerating digital transformation and new innovative offerings for its customers.
“The demand for digital banking services are increasing in Ethiopia’s telecom sector, accelerating the adoption of technologies will boost financial inclusion in the country. According to the GSMA, smartphones will constitute 58 percent of internet connections in Ethiopia by 2025 and will play a critical role in facilitating the delivery of digital financial services to consumers,” the bank said in its statement sent to Capital.
“Working with IBM and its business partners Eidiko Systems Integration Pvt. Ltd. and Afcor PLC, Dashen Bank has gained an agile, secure, and reliable integration platform which optimizes the bank’s resources across cloud and on-premise environments,” it added.
By adopting a hybrid cloud strategy, the bank can now deploy and expand its digital
channels across any technology environment, enhancing an open banking experience with key stakeholders such as fintechs, neo-banks and corporate and telecom partners, “Dashen can now constantly onboard and integrate new apps and partners with a fast time-to-market.”
The move will allow the bank to be more adaptable to changing business needs and digital-first customer expectations enhancing its competitive advantage through easier deployment and development using a cloud-native approach. Additionally, the bank is able to comply with government and international policies and regulations.
“The collaboration with IBM has provided the ability of the bank to enhance its integration capabilities and reduce integration costs, whilst increasing the speed to market, agility, security, and quality of integration tasks. We can already see these benefits on Amole, our omni-channel banking platform, which is using IBM Cloud Pak for Integration, for critical financial transactions such as money transfers, mobile wallets, and others to streamline operations and improve digital experiences for our customers,” elaborated Shimelis Legesse, Chief Information Officer at Dashen Bank.
“As consumers’ preferences for digital and mobile solutions continue to grow due to increasing smartphone penetration and the demand for convenience, IBM is proud to be a trusted partner to Dashen Bank to accelerate their digital transformation. We helped Dashen Bank to identify the hybrid cloud strategy that meets its needs to ensure the bank had a fully integrated, cloud-ready solution that meets its integration requirement,” said Caroline Mukiira, GM East Africa, IBM.
