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Songas tariff hike plans indefensible
2008-04-11 10:16:48
By Editor
Songas, a private company that generates electricity using natural gas extracted on Songo Songo Island, continues to be in the news.
This time it is said to be making frantic efforts to persuade the Energy and Water Utility Regulatory Authority (EWURA) to grant its request to declare a hike in gas processing and transportation charges.
Granting the request would automatically trigger yet another rise in electricity tariffs beginning the middle of next year.
The Songas management claims the measure would enable it to meet rising operational and foot expansion costs in the near future - meaning that its gas-powered electricity supply to the Tanzania Electric Supply Company (Tanesco) would see a substantial boost, thus benefiting the economy and consumers in general more.
On the surface of it, this talk looks convincing, particularly given the recent power supply crisis which threatened to paralyse our economy and made the government enter into controversial emergency power supply contracts.
In reality, however, the Songas expansion plans promise eventually to grow into a burden too heavy for our economy to bear if what is meant is having consumers financing the scheme by being made to pay hiked power tariffs through Tanesco.
On seeing the danger ahead, Ewura has commendably forwarded Songas` prayer to various energy sector stakeholders for debate and comment. That follows Ewura`s rejection of the request at a public hearing in Dar es Salaam on Wednesday.
At the hearing, contrary to what some stakeholders had expected, Tanesco stood staunchly against the idea of forcing gas and electricity customers alone to bear the costs of the Songas expansion plans.
Tanesco\'s reservations are based on its scientific analysis of the financial implications of the proposed hikes, which show that it would have to pay a staggering $18m for the extra gas it would need over the next 15 years or so.
On top of this quite unwelcome agenda from Songas, it is stunning hearing that the company\'s financial forecasts were based on something technically called internal rate of return.
The rate was pegged at 16 per cent calculation, which many analysts dismiss as misleading because it is derived from the not-so-competitive average Treasury yield rate.
Even for the simple measure of the average annual yield on an investment that it is, the calculation should at least have been based on any convenient single-digit inflation rate as determined by prevailing economic fundamentals.
The Songas request contains one more flaw in that it is as well asking for a gas retail price adjustment from the current 15 per cent to 17.5 per cent, ostensibly partly to help the government recover the $4m it spent for over 12 years on the Songo Songo project.
It is unacceptable attempting to engage the government to pursue short-term commercial interests in complete disregard of the wider public interests.
Our economy is already overwhelmed by pressure from factors like rising inflation and food and oil prices.
Hiking power tariffs any further could mean a double-digit inflation rate - with calamitous consequences. That would be terrible.
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