Identifier
Created
Classification
Origin
09ABIDJAN299
2009-05-08 15:26:00
UNCLASSIFIED
Embassy Abidjan
Cable title:  

HIKE IN ELECTRICITY RATES UNLIKELY TO PRODUCE

Tags:  ENRG ECON EFIN PGOV IV 
pdf how-to read a cable
P 081526Z MAY 09
FM AMEMBASSY ABIDJAN
TO SECSTATE WASHDC PRIORITY 5130
INFO ECOWAS COLLECTIVE PRIORITY
DEPT OF TREASURY WASHDC PRIORITY
UNCLAS ABIDJAN 000299 


E.O. 12958: N/A
TAGS: ENRG ECON EFIN PGOV IV
SUBJECT: HIKE IN ELECTRICITY RATES UNLIKELY TO PRODUCE
STRONG REACTION

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