US$61.3 Million in Subsidies Projected For EDSA by End of 2024 – World Bank Report

By zainab.joaque@awokonewspaper.sl

Freetown, SIERRA LEONE – The Sierra Leone government is grappling with increasing fiscal pressure as it continues to provide significant subsidies to the Electricity Distribution and Supply Authority (EDSA) to offset its financial losses. According to the recently published World Bank Economic Update, these subsidies are expected to reach US$61.3 million by the end of 2024.

In 2022, the government allocated NLe708.3 million (approximately US$39 million) in subsidies, a marked increase from NLe101.2 million (US$11 million) in 2019. This escalation represents a rise of over sixfold within just three years. The fiscal implications are substantial; while subsidies accounted for 22 percent of EDSA’s revenues in 2019, they soared to an alarming 102 percent in 2022, amid exceptionally high fuel prices. From 2019 to 2022, the government injected more than US$100 million into EDSA to sustain its operations. In the 2023 budget, an allocation of US$38 million (0.6 percent of GDP) was designated for subsidies, with projections suggesting this amount will increase significantly in subsequent years.

Despite these financial injections, EDSA continues to accumulate arrears, primarily due to historically low electricity tariffs that have failed to cover operational costs. Since the sector’s unbundling, consumer tariffs have been adjusted twice: first by 12 percent in December 2019, followed by a 30 percent increase in July 2022. However, even with an average tariff of US$0.22 per kilowatt-hour, this rate is only adequate if EDSA’s commercial and technical losses are around 40 percent; currently, these losses are approximately 60 percent.

The situation has been exacerbated by currency depreciation against the US dollar, which diminished tariff effectiveness, reducing it to about US$0.12 per kilowatt-hour by January 2023. In response, the government has intervened to assist with EDSA’s power purchase invoices and has assumed debts totaling around US$57 million owed to independent power producers (IPPs) through October 2023.

In October 2023, the government raised tariffs again, restoring them to US$0.22 per kilowatt-hour in real terms—one of the highest rates in the region—with the expectation that this adjustment would enable EDSA to fulfill its financial obligations. Nonetheless, between November 2023 and May 2024, EDSA incurred new arrears of US$18.7 million to IPPs.

This ongoing financial strain underscores an urgent need for reform within EDSA’s operational and commercial frameworks. If the current levels of losses persist and reliance on heavy fuel oil continues, projections indicate that by 2030, EDSA could face cumulative losses exceeding US$640 million—an average annual loss of US$92 million that would significantly outstrip the government’s budget allocations for health and education.

In light of these challenging circumstances, recent regulatory decisions have further complicated matters for consumers. Effective May 8, 2024, the Sierra Leone Electricity and Water Regulatory Commission (SLEWRC) eliminated the T1 social tariff band, which had provided subsidized electricity rates for low-income households. This decision was made under the premise that wealthier customers were disproportionately benefiting from these subsidies, thereby hindering EDSA’s revenue generation capabilities.

While this move has faced considerable criticism for its impact on vulnerable populations, SLEWRC has pledged to develop technology aimed at better identifying low-income customers for future tariff considerations. As Sierra Leone navigates these complex challenges within its energy sector, it is evident that substantial reforms are essential for ensuring both sustainability and economic growth. ZIJ/11/10/2024

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