Myanmar announces first power tariff hike in five years

Electricity rates will increase substantially beginning in July for both residential and business users in the first changes in tariffs in five years, the Ministry of Electricity and Energy (MOEE) announced yesterday.

The proposal by the MOEE to raise prices was approved by parliament in April.

Under the new rates, residential households and religious buildings will continue to pay the previous rate of K35 per unit, but only for up to 30 units. Consumers will be charged K50 for 31-50 units, K70 for 51-75, K90 for 76-100, K110 for 101-150, K120 for 151-200, and K125 for over 201. Consumers who used to pay K3500 for 100 units will now pay K6050, a 72.9 percent increase. This excludes service fees.

Business consumers, including companies, factories, government buildings, embassies, and international organisations, will pay K125 per unit up to 500 units, increasing by K10 for 50,001-100,000 units. K180 per unit will be charged for over 100,000 units.

Street lights at a local night market. Nyan Zay Htet/The Myanmar TimesStreet lights at a local night market. Nyan Zay Htet/The Myanmar Times

The government incurs costs of K89 per unit to generate and distribute electricity from hydropower, and K178 per unit for electricity from natural gas, according to the MOEE.

It is currently supplying electricity to the public at a loss of K507 billion in the 2017-18 fiscal year and losses rose to K630 billion in 2018-19, according to data from the Ministry of Planning and Finance.

Myanmar’s present electricity price is financially unsustainable, with rates the lowest in ASEAN and unchanged despite years of discussions.

The loss is set to be narrowed under the new tariffs but will not completely cover production and distribution costs.

“In making this decision the MOEE has taken efforts not to raise the tariffs to a level that is burdensome for the people. However, at its current level and based on rising demand the tariffs have to rise. We have calculated the new rates to offset a portion of the current subsidies. It will also enable us to provide electricity to the 55pc of the country that currently does not have access to the grid,” U Soe Myint, deputy permanent secretary of the MOEE, told The Myanmar Times.

Graphics - The Myanmar TimesGraphics – The Myanmar Times

Good for investments

The move is expected to boost foreign direct investments (FDI), which are now just a third of total commitments totaling US$5.8 billion in 2017-18, back into the country.

“Myanmar needs to attract FDI by ensuring a stable supply of electricity. This will enable the economy to develop and create jobs for the people, who, in turn, will be able to upgrade their living standards and better afford higher electricity prices. We need to raise the tariffs right now,” said U Maung Maung Lay, vice chair of the Union of Myanmar Federation of Chambers of Commerce and Industry.

The private sector and researchers also welcomed the move. “This sends a clear signal to investors that more projects will be financially sustainable,” commented U Pyi Wa Tun, owner of Myanmar energy firm Parami Energy.

“The new rates are a positive step forward in the development of Myanmar. They signal the government’s intent to tackle Myanmar’s electrification gap and create opportunity for the private sector to better electrify the country,” said FMR managing director Jordan Zele.

U Aye Thaung, chair of Shwe Linn Ban industrial zone committee, pointed out that the new tariffs will be a burden for businesses that consume more than 100,000 units, “as the charges will increase as long as they are using more electricity,” he said.

He added though, that businesses expecting their power bills to spike should take efforts to reduce unnecessary use of electricity to reduce the burden.

“We need to understand that tariffs must rise. It is not sustainable for the state to continue incurring losses from subsidising tariffs so we should do our part by reducing the use of electricity when it is not needed,” he said.

Though the electricity price will rise in the short term, Mr Zele said businesses and manufacturers can expect more secure power supply over the long term as additional capacity is added to the grid. Therefore reliance on expensive generators can be reduced and result in a more efficient power supply.

Guaranteeing access to electricity in Myanmar is challenging, partly owing to the varied geography of the country. The International Growth Centre study said policies supporting off-grid alternatives are important for remote regions.

The subsidy cuts will stimulate the off-grid power sector which has been hamstrung by the low price of grid electricity, Mr Zele added. Similarly, power projects that work in conjunction with the grid, such as solar rooftops, will become more commercially viable.

Time needed

The move also comes after rolling blackouts took place throughout summer this year, with supply lagging behind rising demand. At current levels, Myanmar produces between 2.9GW and 3.1 GW of electricity. It is expecting demand to rise by another 1.5GW in the coming year, said U Soe Myint.

To address its rapidly growing electricity demand, Myanmar needs to invest twice as much and implement projects three times faster, supported by higher electricity tariffs, the World Bank said in its report this month.

“According to recent estimates, consumption will grow at an average annual rate of 11 pc until 2030. Peak demand is expected to reach 8.6GW by 2025 and 12.6 GW by 2030,” the report said.

“To cater to this demand, overall investment requirements are estimated to be around US$2 billion per year, which is double historic levels. By 2025, 5 GW of new generation capacity needs to be added, equivalent to roughly three times what was built over the same period in the past.”

Still, U Maung Maung Lay warned that it could take another “two to three years to upgrade the power infrastructure. Without having had any preparations, such results can’t be achieved in a short time.” – Translated