Why Escom split may not benefit consumers

In line with the Power Sector Reform Project (PSRP), Parliament on Tuesday this week passed an enabling law to facilitate the split or unbundling of Electricity Supply Corporation of Malawi (Escom) into two companies.

The split of Escom—which has enjoyed a monopoly since creation—is being undertaken under the Power Market Restructuring.

Essentially, the passing of the Electricity Act 2004 (Amendment) Bill will allow establishment of a single buyer of electricity, systems and market operators. The regulatory process will also be redesigned as Independent Power Producers (IPPs) will join the fray.

Malawi settled for a model where Escom will have two companies: Escom Generation focusing on producing electricity at the hydro power stations and Escom Transmission/Distribution (or whatever name it would be called) which will be buying from Generation and selling to consumers.

Reforms in the power market have been long overdue. Malawians have had enough of unreliable power supply in recent years, a development that has also negatively impacted on the business climate.

Access to electricity is one of the key drivers of economic growth and poverty reduction. Sub-Saharan Africa has the world’s lowest access to electricity at an average of 22 percent of the population compared to Latin America with 80 percent and South Asia at 60 percent access. For the record, with 9.8 percent access rate, Malawi is at the lower end in the Sub-Saharan Africa region.

In Malawi, Escom has been a monopoly, a thing that has been ranked the single largest impediment to the growth and participation of the private sector. This arrangement has also hampered economic growth as economic efficiency shrank, power sector growth stagnated. I am for the restructuring!

During debate on the amendments to facilitate the split, some legislators feared for job losses at Escom. They dismissed Minister of Natural Resources, Energy and Mining Bright Msaka’s explanation that, in fact, there will be more jobs created. They also expressed fear that consumers will be exploited through high tariffs.

Whereas I share the minister’s take that more jobs could be created through the IPPs, among others, I tend to agree that competition does not necessarily mean gains for the consumer, at least in Malawi.

One just needs to look at the telecommunications sector to prove that multiplicity of players does not necessarily result in lower tariffs.

In the telecommunications sector, the tariffs remain among the highest as the Malawi Communications Regulatory Authority (Macra) seems to be more interested to collect fees from players than protecting consumers or giving them a fair deal. Top among contributing factors to high call rates is Macra’s indecisiveness on the issue of mobile termination rates where operators charge each other for calls originating from a different network.

Many times monopolies have not produced the best results. The situation is worsened where such monopolies as electricity and water utilities have State links as they tend to lack a business culture. In other words, most monopolies are not customer-oriented as they know consumers have no alternatives, after all. This has entrenched corruption where consumers have to “buy” their way through to get connected to water or electricity.

Having read some literature on Escom unbundling, what I have missed is how the consumer will benefit from the development in terms of pricing given that currently Escom generates, transmits and distributes power to consumers.

But in the new setup, Escom Generation will be selling power to Escom Transmission/Distribution that will in turn have own mark-ups when selling the same to consumers. Naturally, if Escom Transmision/Distribution will operate as a business, the price will not be less than what it pays for the unit at wholesale from Escom Generation.

To have a win-win scenario, the power sector regulator, the Malawi Energy Regulatory Authority (Mera), should be empowered. It should not be a rubber stamp of wishes of the regulated. Mera should be given some leverage to be the regulator, not a “revenue centre” for the governing elite as is the case with some regulators.