The Malawi Energy Regulatory Authority (Mera) has tipped the country’s electricity utility provider Electricity Supply Corporation of Malawi (Escom) to vie for the cost reflective tariff which is also in line with Southern African Development Community (Sadc) commitment.
In 2008, Sadc energy ministries agreed to implement cost reflective tariffs by 2013 but this far only two countries have attained cost reflective tariffs. The attainment of cost reflective target has been pushed to 2019.
A cost reflective tariff is one which reflects the true cost of supplying electricity and removes the reliance on State Government subsidies to cover the variance between the current tariff and the true cost of supply of electricity.
According to Mera director of economic regulation Eunice Potani the country should be motivated by Namibia and Tanzania who have achieved cost recovery in their own context, a development that has essentially helped the countries to easily engage independent Power Producers (IPPs)
She said: “As a country, we will take our own process to see how we can move to cost recovery. It may not be on day one but at least a commitment that we know what is our cost reflective tariff in the path that we want to move to get there.
“In the successor new base tariff application to be implemented from 2018-2022, we believe this is the framework Escom has taken and is where we will begin to look at.”
Potani agreed with Sadc energy ministries, saying for countries to make advancement in terms of economic development, they need a sustainable energy market.
“Sadc is hoping and motivating governments in the region to ensure that their countries move towards cost reflectivity. Looking at the trends in the energy market, we have seen that many countries in the region are looking at involving the private sector to contribute to the generation capacity,” she said.
Recently, Escom announced it is considering adopting a cost-reflective tariff model to sustain its operations on the market.
Escom chief executive officer Allexon Chiwaya told Business News recently the plans follow a cost of service study on how much it costs to produce one unit of electricity and whether selling price matches with the cost price.
He said Escom wanted to find out how much it costs to produce one unit of electricity so that it sells that unit above the cost of production for the company to be sustainable.
Under the $350.7 million energy compact funded by the US, government also committed to a phased implementation towards a full cost reflective tariff under the power sector reforms programme.