Hon Folks, Escom. I beg your pardon, Escom Limited, a wholly government-owned limited company still operating as a monopoly—a characteristic common to quite a few parastatal organisations—but under the Electricity Act of 2007 that presupposes competition in the sector.
If the above description above renders Escom’s status a muddle, its recent press statement, justifying the implementation of the automatic tariff adjustment formula (Ataf) from January 1 2016 is even more confusing.
Another fact I’m not disputing here is the legality of Ataf. Escom says in its press statement that the Electricity Act provides for the adjustment of its tariff “at any time” to make up for any losses that may arise due to inflation or currency depreciation.
What makes me mad about Ataf, is the fact that it is essentially a US dollar shield against the volatility of the kwacha, the sole legal tender in Malawi.
Says Escom in its press statement: “Implementation of the Automatic Tariff Adjustment is triggered when the weighted sum of local inflation and the exchange rate (US dollar) is plus or minus 5 percent.”
Never mind the minus aspect, I’m more concerned with the plus aspect, if only because that’s the trend since the kwacha was first floated (a government decision) in 1992 or thereabout. It was about K4 to a US dollar then and now—24 years later—it’s about K600 to a dollar. If truth be told, the forecast remains gloomy.
The oscillations that have characterised fuel prices following the introduction of the automatic price adjustment system on petroleum products are more a result of the sharp fall of oil prices on the international market and not kwacha necessarily gains against the dollar.
Probably, you’d argue that this volatility of the kwacha is exactly the point why the regulator, Malawi Energy Regulatory Authority (Mera), gave Escom the nod to use Ataf as justification for giving us a New Year gift of tariff hike by 30.67 percent a unit instead of the 8.9 percent increase provided for in the 2014 to ‘17 phased base tariff adjustment approved in September 2013.
But should we really expect that the locally generated hydro-electricity will create an Ataf pattern that reflect significant frequencies of minuses? If truth be told, Ataf is effectively Escom’s exit from the grip of the kwacha.
Escom argues that the implementation of Ataf has been necessitated by the fact that 80 percent of what it uses to generate and supply us with electricity is imported. There’s no argument there. It’s a factor of our economy which still exports tobacco and import much of what it consumes including tooth-picks.
But I’m sure Escom, Mera and government are all aware that the so-called “changes in economic fundamentals” for which Escom has adopted a dollar shield are a factor of the Malawi economy which affect virtually all players in it.
Quite a few, if not many, of Escom’s corporate customers in the manufacturing and service industries also import 80 percent, if not more, of their supplies. These folks will have no choice but to pass on the Ataf whiplash to the consumer who gets paid in kwacha.
It’s also likely that water boards which greatly depend on Escom power to run their pumps, will sooner or later also go Ataf, or use lack of it as an excuse to make us live for months without a drop dripping from the tap.
How all this will play on making the Malawi environment attractive to foreign investors may be a matter for another day but the last time I was privileged to be part of an international discussion on utilities, I heard if the total cost of these shoot beyond 25 percent of the operational budget, a chill automatically runs through the veins of the investor.
In case amnesia has hit government, let me humbly remind folks at its helm that when it pleased government to devalue the kwacha by 49 percent and float it at the same time, the public sector reacted by making pay-hike demands of up to 60 percent, citing rising cost of living.
Likewise, when the economy got a knock as a consequence of the drama that came with zero-deficit budget of Bingu’s second term, the public sector reacted to the subsequent economic hardships by threatening to down tools if government failed to meet their huge pay-hike demands.
Government would therefore be naive to think Ataf is justified for Escom and not anyone else. Maybe it’s time to come out in the open and do what Zimbabwe did—ditch the local currency and use the dollar instead. n