State-owned Escom is in talks with Independent Power Producers (IPPs) to sign the power purchasing agreements. Under the arrangement, IPPs will be selling their power to Escom who will in turn sell the power to consumers. This will provide Escom with the much-needed power the country desperately needs.
However, both Escom and government are not coming out clearly on who will bear the brunt of the power from the independent power producers. According to media reports, there are about seven power investors who will produce power and sell to Escom.
They will need to make a profit on their investment (i.e. they will sell to Escom at a profit). They cannot generate power for free. The primary aim of investing is to make a profit. They are not charitable organisations. Since Escom will also be buying from these IPPs it means they also add a mark up when they sell to the final consumers who are electricity consumers. At the end of the day, electricity tariffs will go up. This excludes the power that Escom’s own power stations generate whose tariffs are already high.
While it is good to have several players in the energy sector, the business model that is being adopted will not assist Malawians because electricity will be more expensive than before. It would have made more sense if the IPPs were to generate their own power and sell directly to consumer. This was going to create a climate of competition among producers and bring down the tariffs down. With the arrangement that is being pursed, the cost of electricity cannot go down. IPPs will compete among themselves the price they charge Escom, but Escom will still retain the monopoly of selling power to the consumers.
It is important that both Escom and government come clean and explain to Malawians how the entry of IPPs in energy production will not mean additional cost to consumers. Certainly, government and Escom have a duty to explain to the citizens how this ‘marriage’ will work. What are the cost implications of IPPs selling electricity to Escom? Does the entry of IPPs not mean that consumers will dig deep into their pockets? What assurances are there that the entry of IPPs into the power market will not negatively affect consumers? Normally, agreements favour investors rather than local people. Escom and government should, therefore, tread carefully with these agreements to ensure that they do not increase the cost of doing business.
Consumers cannot trust the Malawi Regulatory Authority (Mera) to defend consumers. It is highly unlikely to resist requests for tariffs from Escom emanating from the purchase of power from IPPs. Already Mera has proved that it is weak to defend consumers from power tariff hikes. It endorses any proposal for tariff increase from Escom even when it is failing to deliver.
While IPPs will positively contribute to the grid, Malawians should be wary about the cost. The tariffs will go up. It also remains to be seen whether Escom will use this as an opportunity to improve efficiency and build power plants across the country to beef up capacity. n