HIKE IN ELECTRICITY RATES UNLIKELY TO PRODUCE

UNCLAS ABIDJAN 000299 E.O. 12958: N/A TAGS: ENRG ECON EFIN PGOV IV SUBJECT: HIKE IN ELECTRICITY RATES UNLIKELY TO PRODUCE STRONG REACTION ¶1. Summary. In an effort to decrease government subsidies to the electricity sector, and in line with recommendations from international financial institutions, the GOCI raised most household electricity rates by 10 percent effective April 30. Previous increases in electricity rates have not generated the public reaction that increases in food or fuel prices have. Post does not anticipate a strong public reaction. End summary. ¶2. The GOCI announced that, as of April 30, electricity rates for households would increase by 10 percent. Households that use low amounts of electricity are exempted, and the rate increase does not apply to businesses or industrial users. The GOCI expects the price hike to result in approximately USD 40 million in additional revenue for the sector. Total electricity sales are approximately USD 450 million per year. ¶3. The Ivoirian electricity sector incurred significant financial losses in 2007-2008 due to rising fuel costs, greater reliance on thermal power, and unchanged power rates. The cost of gas used to produce electricity increased during 2007 and 2008 because, under the existing contract for gas, the price of gas is directly linked to international oil prices (not/not gas prices). Difficulties in bill collection--in particular from government agencies and from clients in the northern region of the country, which until recently was split from the rest of the country since a rebellion in 2002--contributed to the sector's financial deficit. GOCI subsidies for electricity resulted in a drain of approximately USD 120 million on the GOCI budget in 2008. ¶4. In an effort to encourage a more stable fiscal environment and more pro-poor spending, the international financial institutions have encouraged the GOCI to diminish these subsidies. In early 2008 the GOCI raised electricity rates for businesses by 10 percent on average. The GOCI also began negotiations with gas operators in order to revise the indexation of gas prices. ¶5. In the IMF Poverty Reduction and Growth Facility approved March 27, the GOCI agreed to revise the level and structure of electricity tariffs so as to improve the financial viability of the electricity sector. It also agreed to limit subsidies to the electricity sector to CFA 25 billion (approximately USD 50 million),on the basis of a better price for gas purchases negotiated with the gas producers, a revision of the electricity rate structure and, as needed, an increase in rates. ¶6. Comment. The rate increase received little attention in the press. During a May 5 meeting with econoff, the leader of one of Cote d'Ivoire's leading consumer unions, the Union Generale des Consommateurs de Cote d'Ivoire, expressed little concern about the increase, though he questioned the need to raise prices when Cote d'Ivoire is exporting electricity to other countries in the region. In the past, hikes in prices for rice and fuel (or transportation) have resulted in significant protests. However, Ivoirian consumers are not well organized (especially around the electricity issue),and many will be exempt from the increase because of their low level of electricity use. It seems unlikely the increase will create a significant reaction from the public. End comment. NESBITT