Escom, Egenco fight delays ‘cost-reflective’ tariff

Differences between Electricity Generation Company (Egenco) and Electricity Supply Corporation of Malawi (Escom) over cost-reflective tariff have delayed the roll out of the scheme with barely a year to the end of the $350 million (K242 billion) Millennium Challenge Corporation (MCC) energy compact.

United States of America (USA) Ambassador Virginia Palmer, whose government is financing the compact through MCC, has since expressed concern over the delayed resolution of the issue.

A cost-reflective tariff means that the tariff paid by the customer should be equal to the cost of supply for that customer, according to Malawi Energy Regulatory Authority (Mera).

Escom and Egenco have failed to agree on some modalities for the power purchase agreement (PPA) tariffs following the unbundling process and have since referred the issue to the Ministry of Natural Resources, Energy and Mining to intervene, the seventh semi-annual review forum of the Millennium Challenge Account-Malawi (MCA-M) learnt in Lilongwe yesterday.

In their presentations, both Escom and Egenco said there was a general framework, but the tariffs were yet to be agreed on due to some misalignment and approach on the two submissions from the two institutions.

They said the ministry would resolve the standoff while Mera looks into the tariff methodology.

Escom commercial and customer service manager Wiseman Kabwazi said the two parties have already agreed on PPA pricing for hydro-generation but were yet to agree on thermal, the use of diesel generators.

“On capping of end-user tariff and the use of cost-reflective tariff, the ministry will give direction,” he indicated in the Escom presentation.

Palmer said there was a lot of progress registered in the MCC compact, including the unbundling of Escom and construction of substations and new power lines.

However, she observed that additional private sector investment in power generation and agreement on tariffs were some of the outstanding issues before she could rate the compact was a success.

Palmer said for independent power producers (IPPs) to know that Escom is financially sound to buy and pay for power, there was need to expedite the power purchase agreement between Escom and Egenco which the regulator Mera was in the process of working out.

She said: “The delays in implementing the needed tariff adjustments over the past year jeopardise the US government investments to modernise your power grid, threaten other energy sector reforms and limit Malawi’s ability to expand access to electricity.”

Palmer further appealed that the cost-reflective tariffs would be done soon and hoped these would be introduced gradually towards the end of 2018.

“Having cost reflective tariffs is essential for Escom and Egenco to be able to maintain the investments made and Malawi’s own investments so that we can have sustainable power for all Malawians,” she said.

On his part, Minister of Natural Resources, Energy and Mining AggreyMasi said government would ensure that the price of electricity was in line with the cost of providing the service.

He said: “In order to fund operations, maintenance, continued expansion, quality of service and increased access to electricit2 both Escom and Egenco need to have a cost reflective tariff and government needs to ensure that Escom and Egenco sign the power purchase agreements to showcase to independent power producers that Malawi is ready for business”

The semi-annual review forum was called to give an update on the power purchase agreement, progress on cost-reflective tariff adjustments as well as plans for sustainability of the compact, especially handover of infrastructures, after it comes to an end in September, 2018.

Of the $350.7 million compact, about $238 million has been invested in upgrading the grid and increasing capacity from the current 260 megawatts (MW) to 960MW by September 2018.

On-going developments include doubling capacity of the 66/11Kv Bunda substation, construction of the 132 overhead transmission line from Nkhoma to Bunda turn off and construction of a 400/132kv power transmission line to be completed by June, 2018.

In March this year, Escom got a taste of its own medicine when Egenco billed it K4.5 billion for January, an invoice Escom considered way too high. Apparently, the Egenco bill was K2 million short of what Escom billed consumers for the same month.

Egenco, a power producer selling to Escom, proposed a tariff of K25 per kilowatt hour (kWh) while the average Escom tariff then (in March) stood at K58.39/kWh.