Entrapped between rock and hard place

Hon Folks, Energy regulator Mera has, through a press statement, publicly thrown its weight behind Escom’s dollar-pegged automatic tariff adjustment formula (Ataf).

By implication, Ataf has the blessings of government to cushion Escom against the sickening volatility of the kwacha against the dollar. Lucky Escom for acquiring the “green card” to effectively trade in Malawi on dollar terms.

Although the politically correct part of Ataf is that the automatic tariff adjustment applies when the kwacha loses or gains against the dollar, in reality, the formula is a shield against loss of kwacha value against the mighty dollar.

Since 1992 when the original Ngwazi, Kamuzu Banda, floated the kwacha probably for the first time, we’ve seen a consistent glide from K2 to a dollar then to about K730 to a dollar now.

When JB devalued the kwacha in 2012 and floated it at the same time, the fall was catastrophic and it’s yet to lose its momentum. In between, the kwacha could be stable or even make some modest gains against the dollar but such gains have been a mere aberration to a downward spiral.

That is the story of our political economy. At the centre of it is government’s failure to grow the economy and stimulate the production of import substitutes and more goods and services for export.

Our woes have also been compounded by political interference in the operations of parastatals. The President has prioritised loyalty at the expense of merit when appointing board members and cronies think it’s their right to supply over-priced cheap materials and services. Sometimes, ineligible siblings and cousins of people in high places end up taking positions in parastatals through the backdoor.

The ruling party expects parastatals to provide transport to presidential rallies and other functions and, in some cases, funding. When hard-pressed for cash, government ministries and departments expect the parastatals—especially Escom and water boards—to continue providing services.

Such habits are of course the debris that Ataf has swept together with Escom’s genuine pricing needs and heap them in the pocket of the innocent, compliant consumer.

Matthews Chikaonda, while serving as Minister of Finance in the Bakili Muluzi administration, was courageous enough to highlight how political interference crippled the ability of parastatals to stand alone and grow.

Nobody listened and little, if any, has to date been done to allow for professionalism and accountability to prevail in state-run companies. To avert the wrath of IMF, government avoids providing subventions to these badly-run commercial entities, opting for a pricing model that makes the consumer pay for both the service, the corruption and the inefficiency that come with it.

Escom’s argument for Ataf is that it imports 80 percent of the materials used to generate and distribute electricity. This excuse is different from the one Mera used to allow for a dollar-pegged automatic pricing system for fuel, a 100 percent import.

In the case of Escom, it’s mostly capital goods it imports for the generation of electricity from the water that God gave us free. There are many companies which also import 80 per cent or more of their raw materials. What will stop them from adopting the Mera-sanctioned Escom pricing model?

Indeed, what will stop anyone down the value chain from using Ataf as an excuse for their own price adjustments?

Now the big question: does government expect the consumer who also happens to be the taxpayer, the voter and the worker sit and watch as everything, except their incomes, go up?

Unless one was outside the country when rising cost of living coupled with the pangs of the floatation of the kwacha triggered labour unrest in 1992, this is not the way for government to manage Escom under the current circumstances.

As a state-owned utility provider, Escom is better off exempted from taxes on its imports than allowing it to ditch the legal tender everybody is using. An honest soul-searching by those entrusted with sovereign powers would also help identify other areas where change is necessary.

Otherwise, when civil servants go out on the street, demanding pay-hikes to cushion Ataf-induced rising cost of living, it’s government that’ll be caught between a rock and a hard place. Unless it has already forgotten its commitment to IMF to avoid bloating the wage-bill further.