Study cautions on power sector reforms

The National Planning Commission (NPC) says many of the reforms in the power sector are not sustainable and can be reversed if corporate governance and management practices issues are not tackled.

The 2021 NPC Malawi Priorities Paper, which focused on the cost-benefit analysis of power sector reform for business friendliness in Malawi, observed that this is despite improvements in the sector in the past five years through the Millennium Challenge Corporation (MCC) energy compact.

The paper says before the MCC Compact Power Sector Reform, Electricity Supply Corporation of Malawi (Escom) suffered from operational and governance challenges related to insufficient management capacity, unresponsive customer service, weak internal controls, political interference, and poor transparency.

Reads the paper in part: “Despite this, the independent evaluators highlight corporate governance as well as operations and management as the weaker outcomes of the five-year project. The financial position of Escom has also been another challenge to Malawi’s power sector.

“The tariff in Malawi has not been cost-reflective, partly due to political factors beyond Escom’s control, which has left Escom unable to cover its cash flow requirements.”

The paper further says this has impeded Escom’s ability to perform regular operations and maintenance, leading to  focusing new connections on high-value customers.

The MCC Power Sector Reform Activity Financial Analysis recommended a sustainable debt management plan for reducing Escom’s operation costs and a new tariff adjustment methodology, among other interventions, to improve Escom’s financial health.

On Tuesday last week, Escom public relations manager Innocent Chitosi told The Nation that private companies and government ministries, departments and agencies owe Escom about K42 billion in unsettled electricity bills, a situation he said is frustrating the operations of the company.

He said by failing to pay Escom, in essence the power utility provider is financing the operations of their customers; hence, negatively affecting the cash flow of the organisation

The $350.7 million (about  K257 billion) energy compact sponsored by the United State of America government agency was aimed at addressing electricity supply challenges through  investments in the national electricity grid’s generation, transmission, and distribution infrastructure to increase grid capacity.

In an interview on Tuesday, energy expert Grain Malunga observed that corporate governance is an issue in parastatals because of their links to government and political directives.

He said to correct the situation, there is needs to enforce Escom isndependence by toning down on political appointments.

Malunga, a former Energy minister said: “We incorporated it [Escom] to a limited company for it to operate as a private company and any corporate governance issues are supposed to be managed by the board.

“But now it is a challenging situation which can only be solved if the highest political office gets its hands off Escom.”

However, the MCC March 2021 evaluation brief titled Improving Power Quality and Reliability in Malawi observed that to achieve project objectives and sustain results in the future, it is essential for key government institutions involved in Malawi’s power sector to coordinate efforts in addressing the generation supply gap.