Can Lesotho Fix Its Power Revenue Gap Without Pricing Vulnerable Households Out of Electricity?

Lesotho’s proposed electricity tariff reform seeks to close a major revenue gap through phased increases while protecting low-income households and encouraging more efficient power use. Its success will depend on transparent pricing, targeted consumer safeguards and visible improvements in reliability as the country’s electricity customer base expands.

Lesotho's proposed electricity tariff reform has brought a difficult national policy choice into focus: how to finance a more reliable and expanding power system without making electricity unaffordable for households and businesses. Findings from a Cost-of-Service Study suggest that current tariffs are no longer sufficient to cover the cost of supplying electricity, creating financial pressure that could affect maintenance, new connections and service quality.

The Lesotho Electricity and Water Authority and the African Development Bank convened government representatives, energy institutions, consumer groups, academics and technical experts in Maseru on 26–27 August 2026 to discuss the findings. The recommendations remain proposals rather than an approved tariff decision, making the consultation process important for determining how costs and protections will ultimately be distributed.

A Widening Gap in the Power System

According to the study, existing tariffs are expected to recover only about M74 for every M100 required to supply electricity in the 2026/27 financial year. This leaves approximately 26% of the estimated service cost uncovered.

Closing the gap immediately would require an average tariff increase of about 35.6%. Instead, the study proposes a phased average increase of 12.8% annually over three years, potentially reducing the immediate shock for consumers while gradually improving the sector's finances.

For Lesotho, continued under-recovery could weaken the electricity provider's capacity to maintain infrastructure, repair faults, replace ageing equipment and invest in network expansion. The consequences may become more serious as the Lesotho Electricity Company's customer base grows from approximately 320,575 in 2025 to nearly 391,544 by 2030, an increase of about 71,000 customers, or nearly 22%.

New customers could expand the company's revenue base, but connecting and serving them will also require additional meters, distribution lines, substations, maintenance and customer support. Tariff reform is therefore tied not only to present financial pressures but also to the system's ability to meet future demand.

Households and Businesses Face Unequal Effects

For households, even a phased increase could affect spending on food, transport, education and other essential needs. The consequences will be greatest for low-income families whose earnings may not rise alongside electricity prices.

The study recommends a progressive tariff structure under which customers consuming more electricity would pay more. This could protect basic household consumption while generating additional revenue from users with greater demand and potentially greater ability to pay.

However, the success of this approach will depend on the design of the social tariff. Policymakers must determine who qualifies, how much electricity should receive protection and how the subsidy will be financed. These details remain. Low consumption may not always accurately identify poverty, particularly in large households or among families with essential electricity needs.

Businesses and industries could move towards time-of-use pricing, meaning electricity charges would vary according to when power is consumed. Companies able to shift production to off-peak periods may lower their bills while reducing strain on the grid. Smaller firms, retailers and service providers with fixed operating hours may have less flexibility.

Higher electricity costs could also affect prices, employment decisions and business competitiveness. Energy-intensive firms may delay expansion or pass additional expenses to consumers unless improved reliability reduces their losses from outages and dependence on backup power.

Higher Tariffs Must Deliver Better Service

For policymakers, the central challenge is building public confidence that higher payments will produce measurable improvements. Consumers may resist repeated increases if electricity remains unreliable or if the reasons behind the cost gap are not clearly explained.

Authorities will need to disclose the principal drivers of supply costs, including electricity purchases, system losses, maintenance expenses, staffing and infrastructure investment. The available material does not provide a detailed breakdown of these components.

Tariff adjustments could also be linked to performance indicators covering outage frequency, repair times, connection delays, electricity losses and complaint resolution. Such monitoring would allow households, businesses and regulators to assess whether additional revenue is improving the service.

The government must also examine the wider economic effects. A rapid increase could add to inflationary pressure and raise the cost of public services. A phased approach gives consumers more time to adjust, but consecutive annual increases could still create significant cumulative pressure if wages and business revenues remain weak.

Reform Opens Opportunities but Carries Risks

A financially stronger electricity sector could improve Lesotho's investment environment by making power supply more predictable. Reliable electricity supports manufacturing, digital services, retail, healthcare, education and other productive activities. It could also encourage private investment in network upgrades, smart meters, renewable energy and efficiency services.

Development partners can support the process by strengthening regulation, helping design targeted consumer protection and financing infrastructure that reduces long-term supply costs. The African Development Bank's involvement connects the reform to its Africa Energy Sector Technical Assistance Program and Mission 300, the joint African Development Bank–World Bank initiative seeking to connect 300 million more Africans to electricity by 2030.

The main risk is that tariffs rise before consumers experience better service. Poorly designed protection could also exclude vulnerable households, while excessive charges on productive users could weaken businesses and employment.

The next steps to watch include the regulator's final tariff proposal, the structure of consumption bands, protection for low-income households, the implementation timetable and any service commitments attached to higher charges. Lesotho's reform will ultimately be judged not by how much tariffs increase, but by whether the country can build a financially sustainable electricity system while keeping essential power accessible and affordable.