Mera rues govt move on tariffs
Malawi Energy Regulatory Authority (Mera) says government’s social obligations often disrupt cost-reflective price implementation in the energy sector, leading to financial liquidity issues for operators and dependent organisations.
In its April 2023-March 2024 Mera Highlights, the energy regulator observes that energy prices in the sector are regulated under the assumption that the automatic pricing mechanism for petroleum products and the base tariff along with the automatic tariff adjustment formula (Ataf) for electricity, will be fully implemented.
Reads the document in part: “Retail price adjustments are necessitated by a trigger band of +/- five percent based on economic indicators like the foreign exchange rate.
“To mitigate these disruptions, Mera intends to proactively engage the government as soon as these obligations arise to discuss the potential impacts and explore alternative financing strategies before any implementation takes place.”
Mera says that during the period under review, Malawi experienced severe foreign exchange shortages, leading to petroleum product scarcities and difficulties in procuring spare parts for the maintenance of electricity systems.
Mera says this nearly doubled operating expenses and shifted its focus to managing fuel crises.
In the year under review, the energy regulator conducted a review of the 69.7 percent base tariff increase proposed for the fiscal year 2023/27 as presented by the single buyer in Electricity Supply Corporation of Malawi (Escom).
Following the comprehensive review, Mera approved and granted an average tariff increase of 50.8 percent segmented into four annual tranches.
This meant that electricity tariff would move from K104.46 per kilowatt hour (kWh) in 2022/23 financial year to K1 23.26/kWh in 2023/24, K142.98 in 2024/25 financial year, K160.14 in 2025/26 and K174.56/kWh in 2026/27 fiscal years.
However, on November 9 2023, Mera approved a 40.92 percent increase in electricity tariffs following the application of Ataf from November 10 2023 in the wake of 44 percent kwacha devaluation, but government suspended the hike in December 2023 after people complained about commodity price increases due to the devaluation.
At that time, Minister of Energy Ibrahim Matola said they noted that the devaluation negatively impacted Malawians as it resulted in price increases of goods and services.
Matola was not available for a fresh comment yesterday.
In an interview yesterday, Consumers Association of Malawi executive director John Kapito said electricity price hike freeze also affects Electricity Generation Company (Egenco), as a power generator, making Escom vulnerable by buying electricity at a higher price from Egenco and selling the same to consumers at lower prices.
He said energy prices should be adjusted immediately after the price review as players use expensive financial instruments that demand the regulator not to delay any price adjustment.
In an interview yesterday, economist Frederick Changaya, who is also former Escom board chairperson, observed that while there is justification for social protection, there are a number of areas that can be explored to moderate the costs and maximise revenues.
“It is indeed a challenge for the energy sector to implement cost-reflective tariffs due to the social interest by government,” he said.
In its July 2024 Malawi Economic Monitor, the World Bank also observed that the country’s pricing in the energy sector is costly and regressive.
Reads the report: “However, the calculated fuel price has long relied on the official exchange rate and on discretionary pricing policies, which ultimately reflect non-commercial considerations.”
