Partners are calling for additional revisions to address currency rate fluctuations, despite the government’s recent implementation of a long-awaited electricity tariff adjustment in June 2024. On June 20, 2024, the Council of Ministers approved a new power rate adjustment during its 36th regular meeting, which came into effect on September 11, coinciding with the Ethiopian New Year. The adjustment is part of a four-year plan to increase revenue and cover rising infrastructure costs for Ethiopian Electric Power (EEP) and Ethiopian Electric Utility (EEU).
The reform, delayed for two years, aims to address the escalating operating and infrastructure expenses of both entities. Under the new pricing structure, customers using up to 200 kWh of electricity receive subsidies from EEU, which manages retail power supply. However, electricity costs have surged by an average of 122%.
This framework lays the foundation for the four-year tariff adjustment plan for 2025–2028, targeting cost recovery. The plan includes quarterly power rate increases averaging 10%, with higher initial hikes to help the energy sector recover its costs.
Despite international support for the recent adjustment from partners such as the World Bank and the International Monetary Fund (IMF), additional changes are now being sought. The IMF has indicated that a revised electricity tariff schedule will be implemented by June 2025 to fully recover operational and debt service costs by 2028. Similarly, the World Bank has emphasized the need for regular tariff adjustments to reflect changes in inflation, exchange rates, and other economic factors.
“The goal is to achieve cost recovery for debt servicing and operational expenses by 2028, enhancing the sector’s financial sustainability,” the World Bank stated.
Experts point out that the recent tariff adjustment, approved in June 2024, did not account for changes in the exchange rate implemented as part of the government’s macroeconomic reform on July 29. Partners supporting the reform expect the government to revise electricity tariffs to reflect the new exchange rate.
Sources familiar with the matter report that the initial tariff adjustment study was based on an exchange rate approximately 50% lower than the current rate. As a result, future tariff adjustments are expected to double current rates.
The adjustment aligns with the broader goal of reducing reliance on government and international financing for electrification programs. EEP, which has struggled to meet its debt obligations despite significant funding from the Commercial Bank of Ethiopia (CBE), faces ongoing challenges in financing its projects. Analysts argue that further tariff revisions are necessary to address these issues and support the sector’s growth.
Experts highlight that nearly three-quarters of investments in Ethiopia’s energy sector require foreign currency. To address financial sustainability, the Ministry of Finance ordered the replacement of EEP’s outstanding loans to CBE before the macroeconomic reform announcement. Additionally, the World Bank’s energy strategy supports grid, off-grid, and mini-grid electrification based on least-cost principles.
EEP received new debt relief of 263 billion birr from CBE following the reform, in addition to liabilities transferred to the Liability and Asset Management Corporation. This measure is expected to enhance the company’s ability to secure foreign currency for debt repayment and project financing.
EEP, one of Ethiopia’s largest enterprises, reported total assets of 907 billion birr as of July 2024. Demere Assefa, Finance Executive Officer at EEP, stated that the exchange rate reform allows the company to work with multiple banks, including the central bank, to settle foreign debts and implement projects using both local and foreign currencies.
The four-year electricity tariff adjustment plan remains a cornerstone of the government’s efforts to strengthen Ethiopia’s energy sector and achieve financial sustainability by 2028.
