Malawi Energy Regulatory Authority (Mera) has announced an adjustment of about 30 percent in electricity tariffs from an average of K22.78 (about 6.5 cents) per kilowatt hour to K29.55 (about 8 cents), effective May 9 2013.
In a statement released on Friday, Mera chairperson Lyon Zinyemba attributed the adjustment to the continued deterioration of both inflation and exchange rates. He indicated that the adjustment would then assist Electricity Supply Corporation of Malawi (Escom) to raise more money to meet existing foreign currency obligations for its suppliers and lenders.
In the statement, Zinyemba further noted that since the November 2012 adjustment of electricity tariffs by 41.91 percent based on the Automatic Tariff Adjustment Formula (Ataf), both inflation and exchange rate continued to deteriorate.
“Although the kwacha stabilised and gained value over the past few weeks, the gains from the appreciation of the kwacha have been wiped out by the backlog on outstanding projects loans and bills to supplies designated in dollars leaving a net exchange loss which is not covered. Escom therefore has to raise more money in local currency to meet existing foreign currency obligations for its suppliers and lenders,” reads the statement.
Last year alone, electricity tariffs were adjusted by about 100 percent, with a 63.52 percent adjustment in May 2012 and a 41.91 percent adjustment in November.
Experts have argued that pushing up energy tariffs in the country, the lowest in the Southern Africa Development Community (Sadc) would address some of the challenges that the sector is currently facing, including frequent blackouts and investments in the sector.
They argue that the Ataf is a positive step to turn around the sector’s woes considering that if tariffs remain below economic cost there will be insufficient funds to build new generation and transmission infrastructure or to connect customers and maintain existing infrastructure.
In an earlier interview, Minister of Energy Ibrahim Matola pointed out that the tariff which Escom is currently charging embodies an inherent subsidy.
Before the latest adjustment, Ibrahim indicated that Escom charged an average of 6.5 US cents per kilowatt hour while its cost of production is about 10 to 12 cents per kilowatt hour.
“Since Escom is charging less than what they are supposed to even adequately cover their operational costs, they are thus unable to invest in expanding future generation, transmission and distribution capacity. They are indeed unable to undertake scheduled maintenance and full rehabilitation of some existing infrastructure (plant and equipment) that has outlived its useful lifespan.
“Who then pays this subsidy? Nobody directly pays it but Escom has to forgo some important activities in order to keep themselves afloat with the inadequate revenues they raise. Eventually the tax payer through government pays for the subsidy, because government had to forgive debts that Escom owed it,” said Matola.
Inadequate power is consistently identified as a key constraint to economic growth in Malawi and experts have argued that the lack of reliable power significantly lowers social returns and deters new investment in manufacturing, mining and other productive sectors.
However, there is hope that the sole power supplier’s financial health will be restored as part of power sector reform activity under the United States of America’s $350.7 million Millenium Challenge Corporation (MCC) compact funding.
The funding will be implemented by the Millenium Challenge Account (MCA-M).