Electricity Supply Corporation of Malawi (Escom) has developed an ambitious strategy to persuade government not to take away the single-buyer function (SBF) from it.
A position paper dated November 5 2021 from Escom, titled ‘Why single-buyer to be in Escom’, which Weekend Nation has seen, cautions government not to duplicate SBF under Power Market Limited (PML), to avoid creating unnecessary costs and chaos in the electricity sector.
The paper is part of implementation of a March 15 2021 resolution between the shareholder, the board and Escom Staff Union, which resolved to carry out an independent review of placement of SBF.
Escom argues in the statement that reasons advanced for removal of single buyer function from it to PML are not consistent with the reality and that creation of PML imposes unnecessary costs.
Reads the report: “By removing SB and or any one of the four functions from Escom, one is actually amputating Escom, thereby rendering Escom unable to deliver on its mandate effectively and efficiently.”
Escom further argues that SBF is facilitating work of functions already under, namely transmission and system and market operators on one hand and distribution on the other and, therefore, by placing SBF outside Escom, it introduces administrative bottlenecks.
The policy report, therefore, observes that power procurement is not a routine and repeated activity; therefore, it does not require an entity outside of it.
Further reads the document: “While the functions of the four licensees are closely linked, the placement of these four functions within Escom reduce overall electricity cost to end-user customers…having four licensees under organisational structure enables optimisation of inputs through linkage of operational processes; governance cost are all under one roof. PML, taking over as a Single Buyer adds cost in the form of governance structures.”
PML is a creation of power sector reforms project, a component of the $350.7 million (K242 billion) five-year Millennium Challenge Corporation (MCC) energy compact that aimed at improving power generation, transmission and distribution infrastructure.
The new firm was granted the licence by Malawi Energy Regulatory Authority (Mera) under Section 3 of Electricity Act in December 2020 to buy all electricity from independent power producers (IPPs), including importing and selling it in Malawi.
The paper also highlights issues that weakened Escom credit worthiness in the past as a single buyer such as political interference, ministries department and agencies (MDAs), including Blantyre Water Board (BWB), failing to remit and Egenco billing against the power purchase agreement (PPA) provisions for non-dispatched capacity.
Reads the document further: “Tariff revenues granted to Escom did not generate costs that Escom was billed, however, Escom’s failure to ring-fence delayed identification of this situation and as such exacerbated its financial challenges.
“Escom’s failure to timely resolve the above two [issues] by withholding SB appointments years back, shareholder did not enable Escom to operationalise the SB, as required. That was a betrayal. Now, taking SB to PML is even worse.”
There have been wrangles between government and some stakeholders, including Escom Staff Union members, who have been pushing authorities to freeze operationalisation of PML until an independent review of its viability is done.
A letter Reference No C48/2/25 dated November 12 2021 titled ‘Progress on Review and Placement of Single Buyer Function’ from Principal Secretary Energy Patrick Matanda to Escom board chairperson Fredrick Changaya stated that Escom needs to demonstrate to government that it is ready to operate all proposed licence business units.
But, in an earlier interview, former Minister of Natural Resources, Energy and Environment Grain Malunga suggested that Escom should not be a single buyer of electricity, but that PML be merged with Mera, and be a department that should handle all power producers.
Said Malunga: “The consensus was that unbundling of Escom was necessary, but the institutions that were borne out of it smelt of a not-well-thought idea.”
Among others, ESU accuses government of alleged breach of laws and massive irregularities on establishment of PML and recruitment of its top management.
In a letter dated June 14 2021 from the union to Ombudsman, the group, among others, stated that Escom is currently a legal holder of the systems and market operator and single buyer as provided for under section 5 (2) of the Electricity Act and the license is valid for 25 years as provided for under section 12 (1) (e) Electricity Act.