Tariffs not the only setback for investors—Cama

While increasing energy tariffs would bring about competition, we must not be blinded that the only reason investors are not coming to Malawi is because of the low tariffs, Consumers Association of Malawi (Cama) has observed.

Stakeholders to a recent pre-budget summit observed that adjusting tariffs in the energy sector could woo foreign investors.

However, Cama executive director John Kapito agreed the power tariffs are low in dollar terms and that as the kwacha continues to depreciate, the tariffs too will continue to remain low.

“While increasing tariffs would bring about competition, we must not be blinded that the only reason investors are not coming to Malawi is because of the low tariffs. What if there is enough power generation but the investors have no one to supply to, locally?

“However pushing up the tariff would address some key challenges the country is undergoing and I hope the current subsidies to the poor under Malawi Rural Electrification Programme (Marep) will continue to ensure the poor have also access to electricity at an affordable price,” said Kapito adding that with increased competition it will also be possible to negotiate the tariffs all things being equal.

Minister of Energy Ibrahim Matola was quoted last week as saying that tariffs are a major impediment to investment by independent power producers (IPPs), agreeing that having a tariff structure that is cost-reflective would go a long way to attract investors.

He however said that raising energy tariffs alone cannot fully resolve the country’s investment blockages, suggesting a review of the regulatory framework and ensuring sufficient capacity in transmission, among other things.

“On the issue of the tariff, take the example of Escom. The fact of the matter is that the tariff which Escom is charging embodies an implicit subsidy. Escom [Electricity Supply Corporation of Malawi] currently charges an average of 6.5 US cents per kilowatt per hour while its cost of production is about 10 to 12 cents per kilowatt per hour,” said Matola.

Recently, a World Bank energy specialist Rob Mills observed that underinvestment in the country’s energy sector has resulted into the prevailing difficult situation characterised by massive power outages.

He, however, hailed Malawi’s reform agenda including tariff increases and monthly review of automatic tariff adjustment formula as a positive step to turn around the sector’s woes.

In his presentation titled ‘Energy in Malawi: into the light? Made in London recently, Mills noted that Malawi’s energy system is under strain and continues to wobble through financial strains.

“Malawi tariffs remain below economic cost and there are insufficient funds to build new generation and transmission to connect customers and also maintain existing infrastructure,” said Mills.

However,Kapito agreed that adjusting the tariffs would help the country to have continuous reliability of energy.

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.