Efficiency can minimise Escom tariff hikes
It is a fact that Malawi lacks reliable electricity supply. Barely a day passes without electricity consumers experiencing power outage.
To improve the power sector performance, the Ministry of Natural Resources, Energy and Mining embarked on Power Market Restructuring which included reforming the power market to bring on board independent power producers and revamping the generation, distribution and transmission network.
It was in fulfillment of the Power Sector Reforms that the then quasi-monopoly Electricity Supply Corporation of Malawi (Escom) was split or ‘unbundled’ to form the Electricity Generation Company (Egenco) to focus on power generation.
Thus, restructuring of the power market is critical because, in its previous state of a monopoly, Escom as a power utility was not conducive to technology or business innovation. It lacked a customer oriented culture and largely lacked efficiency.
Research has shown a direct and strong connection between access to electricity, consumption, poverty levels and general social well-being. Malawi has one of the lowest electricity penetration rates at roughly 10 percent compared to the sub-Saharan Africa average of 22 percent. In Latin America, the electricity penetration rate is estimated at 80 percent of the population and in South Asia at 60 percent.
What is noticeable in the reforms to date is the unbundling of Escom to form Egenco and moves towards cost-reflective electricity tariffs to boost efficiency.
Escom has since applied for a 68 percent tariff increase to be spread over the next four years under the third base tariff arrangement.
But, at a time Escom is seeking approval of the tariff increase from Malawi Energy Regulatory Authority (Mera), the power utility is embroiled in procurement scandals that raise questions about efficiency at the parastatal. The scandals also push one to wonder whether what Escom needs is a tariff review or improvement in efficiency.
For instance, in June this year, Escom board chairperson Thom Mpinganjira said his board had ordered a forensic investigation into what it called “blatant disregard of procurement rules and regulations”.
According to the 2018 Malawi Government Annual Economic Report, Escom posted a K6.3 billion loss for the period ending December 31 2017, which is attributed to the delays in effecting a tariff increase and costs associated with installation of the diesel generators.
Ironically, findings in the 2016/17 National Audit Office report show that Escom and Agricultural Development and Marketing Corporation (Admarc) collectively abused K9.3 billion through procurement transactions they failed to account for.
In the case of Escom, the report said that during the financial year under review—whose audit was completed in November 2017—the power utility ordered goods valued at K8.3 billion from about 23 suppliers without following internal procurement procedures and without the knowledge of key management. It ordered an excess of K5 billion worth of unrequired items. What is recklessness and abuse if this isn’t?
From the look of things, misprocurement, fraud and corruption seem to be the order of the day at Escom. Poor electricity consumers are on the receiving end as Escom simply pushes its inefficiencies to them through tariff increases such as the one it plans to effect.
For now, from the foregoing, my take is that Escom’s tariff hike proposal lacks justification. What Escom needs is an improvement in its systems to tighten abuse that includes bad procurement decisions, fraud and corruption.
How does an organisation order K5 billion worth of items that may not be needed for the next 10 years? How can 3.8 million litres of diesel for power generation worth K1.9 billion evaporate in thin air? Surely, that cannot just be the work of security guards, a truck driver or stores clerk.
The tariff hike proposal is also suspicious, especially coming against the background of Escom’s abortive request for a K58 billion bailout from Treasury.
Before Mera reviews the tariff hike application, Escom should make public progress on targets set when it got approval to raise tariffs back in 2014.
