MCA, World Bank back tariff increase

The Millennium Challenge Account Malawi (MCA-M) and World Bank have backed power distributor Electricity Supply Corporation of Malawi (Escom’s) proposed base tariff increase.

The two institutions argue it is a means to attract investments into the sector and improve access to electricity for more Malawians.

Escom plans to increase the tariff by 60 percent from an average K73 per kwh to K117 per kwh within four years.

If approved, the tariffs for domestic users will increase from K49 to K81 per kwh, K84 to K135 per kwh for small industries and K94 to K157 per kwh for large industries.

MCA-M and World Bank were making presentations yesterday at the Lilongwe public hearing on the review of the 2018-2022 Escom base tariff application.

MCA-M, which is implementing the $350 million Millennium Challenge Corporation compact which winds up on September 20 this year, argued that cost reflective tariffs or CRT would give investors the greenlight to come into the country and invest in the sector.

MCA-M director of power sector reforms Grace Simwaka said they were concerned about CRT because a study had shown that Malawians were paying very little for electricity compared to production.

The average cost of service study conducted by ECA Consulting found that the average tariff should be K126 per kilowatt hour (kwh) but instead Escom was selling at K73 per kilowatt hour.

The study found that domestic customers should be buying units at K155 per kwh but were instead paying K49.

Simwaka said with such low costs, there was no assurance of continued power supply because Escom could not recover what it invests.

“A cost reflective tariff would be an assurance to investors that they would recover production costs. Investors want to know that there is collection discipline in Escom and they want to see signs of growth and how the sector intends to grow,” she said.

On its part, World Bank energy specialist Paul Kagaba said it was clear that energy sector projects could not be funded by public finance alone and there would be need for external investors.

“Escom would have to be counterparty to the commercial agreements and it would be crucial that Escom is able to manage its finances. Its financial condition is pertinent because if they are earning losses downstream, then the generator will have a tough time,” he said.

World Bank plans to support energy sector investments such as the Mpatamanga Hydropower Project worth $200 million, but Kagaba said investor confidence was delaying its start.

Making a plea and justification for the 60 percent base tariff increase, Escom director of distribution and customer service Alfred Kaponda said the organisation was striving to change and had put in place systems to do that.

To reduce misprocurements which resulted in a K5.3 billion loss in 2016/17 according to the Auditor General, Kaponda said Escom would be submitting a procurement plan to the Director of Public Procurement and Disposal of Assets for accountability.

“We have exposed ourselves to shareholder oversight, from Ministry of Justice, Mera [Malawi Energy Regulatory Authority], Public Accounts Committee and even Anti-Corruption Bureau is now welcome. There is nothing to hide,” he said.

Kaponda referred to the K1.9 billion loss of fuel meant for the diesel generators, saying investigations were underway and no  one would be spared.

He also disclosed that in the four years, Escom would introduce a lifeline tariff for poor consumers pegged at K50 if consumption is below 50kwh.

Consumers Association of Malawi executive director John Kapito said Escom was not making a convincing argument to justify the tariff increase when the institution is riddled with corruption and State capture.

“Consumers appreciate the need for a base tariff increase that is cost reflective and that inadequate investments are the contributing factor to poor electricity supply,” he said.

T

he Millennium Challenge Account Malawi (MCA-M) and World Bank have backed power distributor Electricity Supply Corporation of Malawi (Escom’s) proposed base tariff increase.

The two institutions argue it is a means to attract investments into the sector and improve access to electricity for more Malawians.

Escom plans to increase the tariff by 60 percent from an average K73 per kwh to K117 per kwh within four years.

If approved, the tariffs for domestic users will increase from K49 to K81 per kwh, K84 to K135 per kwh for small industries and K94 to K157 per kwh for large industries.

MCA-M and World Bank were making presentations yesterday at the Lilongwe public hearing on the review of the 2018-2022 Escom base tariff application.

MCA-M, which is implementing the $350 million Millennium Challenge Corporation compact which winds up on September 20 this year, argued that cost reflective tariffs or CRT would give investors the greenlight to come into the country and invest in the sector.

MCA-M director of power sector reforms Grace Simwaka said they were concerned about CRT because a study had shown that Malawians were paying very little for electricity compared to production.

The average cost of service study conducted by ECA Consulting found that the average tariff should be K126 per kilowatt hour (kwh) but instead Escom was selling at K73 per kilowatt hour.

The study found that domestic customers should be buying units at K155 per kwh but were instead paying K49.

Simwaka said with such low costs, there was no assurance of continued power supply because Escom could not recover what it invests.

“A cost reflective tariff would be an assurance to investors that they would recover production costs. Investors want to know that there is collection discipline in Escom and they want to see signs of growth and how the sector intends to grow,” she said.

On its part, World Bank energy specialist Paul Kagaba said it was clear that energy sector projects could not be funded by public finance alone and there would be need for external investors.

“Escom would have to be counterparty to the commercial agreements and it would be crucial that Escom is able to manage its finances. Its financial condition is pertinent because if they are earning losses downstream, then the generator will have a tough time,” he said.

World Bank plans to support energy sector investments such as the Mpatamanga Hydropower Project worth $200 million, but Kagaba said investor confidence was delaying its start.

Making a plea and justification for the 60 percent base tariff increase, Escom director of distribution and customer service Alfred Kaponda said the organisation was striving to change and had put in place systems to do that.

To reduce misprocurements which resulted in a K5.3 billion loss in 2016/17 according to the Auditor General, Kaponda said Escom would be submitting a procurement plan to the Director of Public Procurement and Disposal of Assets for accountability.

“We have exposed ourselves to shareholder oversight, from Ministry of Justice, Mera [Malawi Energy Regulatory Authority], Public Accounts Committee and even Anti-Corruption Bureau is now welcome. There is nothing to hide,” he said.

Kaponda referred to the K1.9 billion loss of fuel meant for the diesel generators, saying investigations were underway and no one would be spared.

He also disclosed that in the four years, Escom would introduce a lifeline tariff for poor consumers pegged at K50 if consumption is below 50kwh.

Consumers Association of Malawi executive director John Kapito said Escom was not making a convincing argument to justify the tariff increase when the institution is riddled with corruption and State capture.

“Consumers appreciate the need for a base tariff increase that is cost reflective and that inadequate investments are the contributing factor to poor electricity supply,” he said.