Escom says it is pondering on adopting a cost-reflective tariff model to sustain its operations on the market.
Speaking during a press conference in Blantyre on Monday on the power situation and other issues, Electricity Supply Corporation of Malawi (Escom) chief executive officer Allexon Chiwaya said this follows a cost of service study on how much it costs to produce one unit if electricity and whether its selling price matches with cost price.
From the power sector perspective, cost reflectivity is attained when the tariff is able to recover all the allowable costs of each regulated and licensed activity within the generation, transmission, distribution and supply value chain.
“We wanted to find out how much it costs Escom to produce one unit if electricity and we must sell that unit above the cost of production for us to be sustainable. But it has been proved that we are selling below that cost.
“So, we are going towards cost reflective tariffs where we will be selling at the two price of electricity, but this will be after consultation. Right now, Malawi Energy Regulatory Authority [Mera] is conducting nationwide sensitisation with stakeholders,” said Chiwaya.
For instance, he said the power supplier has been supplying Likoma Island through use of diesel generators which costs an average of K32 billion a month while it is getting K500 000 in revenues for the same duration.
“At the same time, we can’t leave Likoma Island in the dark, we need to supply it because it is a potential tourism destination as well,” he said.
The Southern Africa Development Community (Sadc) Energy Ministers Conference in 2008 agreed to implement cost reflective tariffs by 2013
Two years later, only two out of 15 countries reported to have attained cost reflective tariffs. The attainment of cost reflective tariffs target was later shifted to 2019.
Under the $350.7 million (about K256 billion) energy compact sponsored by the United States Millennium Challenge Corporation (MCC), the Malawi government committed to a phased implementation towards a full cost reflective tariffs under the power sector reform.
Malawi is among countries with lowest rates of installed electricity capacity in Southern Africa with its penetration at a paltry 10 percent.
According to the World Bank May 2018 Malawi Economic Monitor, at K57.72 per kilowatt per hour [kWh] or $0.08/kWh, which is not fully cost reflective, electricity tariffs in the country are lower than the average for sub- Sahara Africa which is at $0.14 kWh.
Escom is yet to effect a deferred 6.72 percent tariff adjustment which was supposed to be effected in November 2016, and its board chairperson Thom Mpinganjira said this means two years of lost revenue.
Consumers Association of Malawi (Cama) executive director John Kapito, while protesting the proposed model, said adopting cost-reflective tariffs will only push up the cost of goods and services, which has heavy implications on consumers’ disposal income.
“Our calculations show that the cost of production by Escom is in line with what they are producing and if they are incurring extra costs, they should just check how they allocate their resources,” he said.
As at December 31 2017, Escom registered a loss after-tax of K6.3 billion and it is projected that by the end of the financial year, the firm will have registered a profit after tax of K149.1 million.