Malawi Energy Regulatory Authority (Mera) has rejected a 60 percent power tariff increase application Escom submitted and instead reduced it to 31.8 percent spread over four years with 20 percent effective October 1 2018.
Mera’s decision follows nationwide public consultations on the application by Electricity Supply Corporation of Malawi (Escom) for the 60 percent increase from an average K73 per kilowatt hour (kWh) to K117 per kWh within a period of four years.
But Mera yesterday announced it has approved an average increase from the current K73.23 to K88.02 for 2018/19, to K94.54 in 2019/20, to K91.98 in 2020/21 and finally K101 in 2021/22.
This means that effective yesterday, consumers are now paying an average 20 percent more per kilowatt hour for 2018/19.
Making the announcement in Lilongwe, Mera board chairperson Bishop Joseph Bvumbwe said the 31.8 percent increase would translate to an average tariff of K95.15/kWh against K117.64/kWh which Escom requested.
Mera resolved that once the 20 percent increase is effected this year followed by seven percent next year, there should be a three percent tariff decrease in 2020/21 to lower the cost from an average K94.54/kWh to K91.98/kWh.
Mera also said it has moved to protect the consumer by approving the annual increase based on the extra kilowatt per hour that Escom offers its customers.
Mera chief executive officer Collins Magalasi said the regulator had approved the revenue increase to Escom on the promise that it would provide the power that consumers are paying extra for annually.
“When Escom does not offer the extra kilowatt per hour to consumers, Escom will not be allowed to charge increased tariffs,” he said.
Queried to explain the disparities between year one and year three when consumers are not enjoying maximum power, Magalasi said the 20 percent increase was a cost-reflective tariff considering that Escom was billing less for power bought from various sources, including Aggreko-run diesel generators, Electricity Generation Company (Egenco) and the Zambia interconnector expected to bring in 20 megawatts (MW) by the end of October this year.
He said: “The reality on the ground is that the power we are using now is not being paid for in full. With the coming of diesel generators, Egenco power and others, Escom has to pay more to distribute.
“The 20 percent increase will take us to a cost-reflective level and moving forward, increases will only be applicable on power made available to consumers.”
Magalasi said the three percent tariff reduction would be effected in 2020/21 to mark the end of the Aggreko diesel generators deal which runs for two years from 2018.
By the time the 78MW diesel generators are out of commission, Escom plans that an additional 20MW will come from the Zambia interconnector and 148MW by 2019 from solar plants in Salima, Golomoti, Nkhotakota and Kanengo, Kammwamba Coal-fired Plant and the Gabiz Water Energy Gas Plant and Ndiza-Ruo hydroplant by 2024.
In its application, Escom had planned that power procurement costs would reach K718.9 billion, but Mera asked the company to reduce the import costs for power from Mozambique and power purchase agreements costs with the Ndiza-Ruo hydroplant because there would be increased revenues.
The adjustment resulted in the reduction of power procurement costs by about K12 billion.
On reduced capital budget and decreased regulatory asset base, Mera also cut capital projects which were duplicated and adjusted projects that were built into the previous base tariff periode.
Mera also slashed the depreciation for donor-funded projects because these are already paid for and consumers should not have to pay for them again.
This resulted in a drop in the provision for depreciation costs from K140 billion to K56.5 billion.
Mera also decreased payroll costs from K106 billion to K84.5 billion on the grounds that there would be expected increases in labour productivity as more investments are made and staff gain more experience.
Other cuts were made in services and supplies, maintenance, operations while Escom head office costs suffered a cut to K69 billion from K108 billion after Mera adopted a cost sharing framework.
Magalasi said to go with the tariff approval, Escom would be submitting actual quarterly energy sales and actual revenue realised.
“This data will be required to be submitted by the 15th day of the month following the end of the quarter,” he said.
Escom is expected to announce the new tariffs spread across the 20 percent average for this year.
If Mera had approved this proposal, the tariffs for domestic users would have increased from K49 to K81 per kWh, K84 to K135 per kWh for small industries and K94 to K157 per kWh for large industries.
During Mera public consultations, Consumers Association of Malawi (Cama) rejected the proposed base tariff increase on the basis that Escom is riddled with corruption.
But in an interview yesterday, Cama executive director John Kapito said he was proud of the good fight he fought, considering that 31.8 percent spread over four years was reasonable.
He said: “The 20 percent for this year is manageable considering the investments that it will be used for to ensure consumers have reliable power. The increase is acceptable than the 60 percent that Escom had asked for so I am happy it has come out this way.”
In reaction to the announcement, Escom senior public relations manager Innocent Chitosi said the company had just received the Mera determination and still going through it to appreciate the reasons and guidance given. n