Escom’s financial health to be restored

There is a glimmer of hope that the sole power supplier Escom’s financial health will be restored to make it a financially, well-managed and credit worthy parastatal.

The turnaround of the Electricity Supply Corporation of Malawi (Escom) is part of power sector reform activity under the United States of America $350.7 million Millennium Challenge Corporation (MCC) compact funding to be implemented by the Millennium Challenge Account-Malawi (MCA-M).

The power sector reform activity will consist of Escom turnaround sub-activity and the regulatory strengthening.

MCA-M chief executive officer Susan Banda told journalists in Malawi’s commercial city of Blantyre on Monday that the parastatal will also acquire the integrated information management system and develop a detailed financial plan to help assess the cost of services.

“The parastatal will also be helped with the tariff application process that truly reflects the cost that Escom bears,” she said.

She noted that in the current scenario, it is easy for a customer to challenge the bill because the power supplier cannot provide a case for that.

Banda said with the technical assistance that will provided by a consulting engineer, Escom will be able to produce a “bill that is really yours and reflect the electricity you have used”.

Under this arrangement, a loss reduction study will be conducted to lessen the losses of between 20 percent and 30 percent that the parastatal incurs in its distribution and transmission network.

“The losses are not only due to incompetence, but there are so many leakages in the distribution and transmission,” she said.

The MCC compact aims at reducing poverty through economic growth by increasing investment and employment income by raising the profitability and productivity of enterprises expand access to electricity for people and businesses and improve social delivery of social services.

Currently, according to Banda, there is a lot of work that is going on, saying a consulting engineer will work with Escom to produce detailed financial plan that will culminate into the submission of new tariff application by the end of June this year.

But Banda dispelled fears that the restructuring of tariffs will results in power charges being expensive arguing that there will be a ‘lifeline tariff’ that will deal with the social issues.

MCC resident county director Oliver Pierson noted despite the conditions that Escom has to fulfill, the works on the project cannot wait, saying they will run concurrently.

On regulatory strengthening, according to MCA-M, there will be provision of support for government’s policy reform agenda and building capacity of the Malawi Energy Regulatory Authority (Mera) and the Ministry of Energy.

“The objective of regulatory strengthening sub-activity are to develop a regulatory environment, consistent with best practices in independent power utility regulation that supports investment in generation and grid capacity at an affordable cost with potential participation of the private sector,” says the MCA-M compact activities report.

MCC placed a hold on compact assistance to Malawi in July 2011 and formally suspended it in March 2012 because of a pattern of actions by the Malawi Government that was inconsistent with the democratic governance criteria the US agency uses to select its compact partners.

The planned compact is expected to provide at least $2 billion in benefits to an estimated five million Malawians by reducing costs to enterprises and households and improve productivity in the agriculture, manufacturing and services sector by reducing power outages and technical losses.