When the Joyce Banda administration embraced free market reforms that included liberalisation of energy prices in May 2012, the principal aim was to ensure that donors return with their aid.
In line with this policy, government allowed Escom to charge the so-called cost-reflective tariffs and, by extension, subject its customers to the principles of supply and demand.
The demand is certainly there.
Escom generates about 287 megawatts of power against “suppressed demand” estimated in excess of 300 megawatts.
The phrase “suppressed demand” is being used advisedly here because it refers to a situation where household demand for basic services is low not due to lack of consumer interest, but rather because—in this case—electricity services Escom provides are insufficient or are too expensive for most Malawians, at least 50 percent of whom live below the $1 (K340 at present exchange rate) poverty line.
To illustrate the so-called suppressed demand for electricity, one has to look at official data which, among other things, show that 90 percent of Malawi’s population use wood for fuel.
Charcoal production alone accounts for 88.5 percent of the country’s energy needs, with 6.4 percent from petroleum, 2.8 percent from electricity and 2.4 percent from coal.
In terms of electricity, therefore, it means that nearly 97 percent of Malawians are deprived of the service.
So, no, there is no quarrel with demand.
The problem is supply—and only one company controls it or, to put it more bluntly, monopolises it in Malawi.
That firm is a parastatal called Escom, a public utility firm that is 100 percent owned by the State and which has charcoal burners and firewood vendors as its main competitors.
Thus, the idea that supply and demand forces can be at play in a monopolistic market in which Escom is the only player is proving to be a fallacy that is costing households and firms an arm and a leg to buy electricity from the sole supplier.
In the middle of the free market reforms that only involve one player on the supply side and tens of millions of people on the demand part with no comparable alternative, electricity tariffs have gone up three times within 12 months.
This has over the months resulted in a cumulative increase of more than 84 percent. This nearly two-fold increase comes at a time the cost of living in Malawi is heading north, requiring a minimum K102 461(US$318) for a family of six to survive on a month.
The first increase in tariffs over the past year was on May 11 2012 followed by another in November the same year and the latest one in May this year, busting households and organisation budgets.
For example, in one year, tariffs for domestic prepaid single phase supply have jumped by about 84 percent from K12.25 kilowatt hour (KWh) per month to K22.50 KWh per month.
Those for postpaid single phase [fixed charge per month], have leaped by 83 percent to K1 350.40 (US$4) KWh from K735 (approximately US$2) KWh and post-paid single phase tariffs charged per KWh per month have soared by 86 percent from K10.65 KWh to K19.65 KWh.
For general or commercial users, tariffs for single phase supply (fixed charge per month) have increased by 84.2 percent to K39.25 per KWh per month from K21.30 KWh.
For fixed charge, they have gone up to K2 257.10 (US$7) KWh per month in May 2013 from K1 225.00 (US$4) KWh last year same period, an increase of 84.2 percent.
The situation is also the same for large and industrial power users, according the Escom tariff structure published on their website, but which the parastatal did not widely disseminate through mainstream media.
And according to Escom spokesperson Kitty Chingota, Malawians should get used to higher electricity bills.
In the 2012/13 budget, Finance Minister Ken Lipenga, as part of free market reforms, liberalised the foreign exchange regimes and removed price controls on fuel and utilities.
“The removal of price controls is necessary to move to a market-based economy and reduce the burden of subsidies on the budget,” he said.
Lipenga may have succeeded in removing the burden of subsidies on the budget to adopt an automatic adjustment of utility prices to reflect full cost recovery, but at a cost to the consumers who are feeling the pinch of unprecedented rising electricity tariffs.
According to an electricity account covering a period of one month for a Blantyre-based Escom customer, the monthly bill in February 2012—before the increment—was K1 131.38(US$3).
It jumped to K2 461.63 (US$7) in June, a month after the raise and eventually to K4 054.33 before the May 2013 hike. The size of his household remained constant during the period.
He said the high electricity tariffs have affected his budget, which means that he has to forgo some other important things to pay for electricity.
There are also inefficiencies in billing that are affecting users, according to another customer from Chirimba in the commercial city.
In a letter to the editor, the customer said despite considerably reducing electricity usage, the bill he has been receiving keeps on increasing.
Chingota was yet to respond to a questionnaire sent on Wednesday.
But in an earlier interview, she said the tariffs will continue rising until the parastatal begins to make profits from production and distribution of electricity.
Even United States’ Millennium Challenge Corporation (MCC), which is funding the parastatal’s sector reform activity under its $350 million (K119 billion) compact with Malawi, said in May that Escom will acquire the integrated information management system and a detailed financial plan to help assess the cost of services.
“The parastatal will also be helped with the tariff application process that truly reflects the cost that Escom bears,” said MCA-Malawi chief executive officer Susan Banda.
She stressed that in the current scenario, it is easy for a customer to challenge the bill because the power supplier cannot provide a case for it.
Government defends Escom’s tariff structure.
In an interview this week, Minister of Energy Ibrahim Matola argued that the tariff Escom is currently charging embodies an inherent subsidy.
He said before the adjustment in May, Escom used to charge an average of 6.5 cents [K22.43] per KWh while its cost of production is about 10 [K34.50] to 12 cents [K41.40] KWh.
But the Escom that is being portrayed as a victim is the same entity that has been wasting its resources to support parties in power at the expense of fulfilling its mandate by investing such money in new power projects and improving existing generation, transmission and distribution systems.
There are several incidences on record in which the parastatal would fuel its tracks to ferry supporters of ruling political groupings.
Professor Ben Kaluwa, an economics lecturer at the University of Malawi’s Chancellor College, agrees with Matola that a tariff structure that is cost reflective would go a long way to attract investors in the sector.
But even with tariffs increasing three times since May 2012, IPPs have not been attracted to invest in Malawi’s energy sector.
This means that consumers will have to contend with the monopolistic tendencies of the power supplier with the liberty to put the tariffs at whatever level it deems appropriate.
But Competition and Fair Trading Commission (CFTC) acting executive director Charlotte Wezi Malonda said on Thursday that Escom is a regulated monopoly because of the nature of services it provides which make it different from other monopolies that are not regulated.
But asked what CFTC can do on consumers’ complaints about Escom’s tariff structure, she said they can only come in if there is any exploitation or creation of unfair trading conditions.
But he said the body has not received any complaints so far.
In a separate interview, Consumers Association of Malawi (Cama) executive director John Kapito said consumers have not seen the worst of tariffs yet.
“What we are seeing is a big setback to issues of deforestation, since a lot of people are using charcoal, which is too expensive as well. People can’t afford to pay for electricity and for most households, it would not be possible to have continuous power supply at the current levels of tariffs,” he said, blaming all this on government’s adoption of economic reforms to please Western donors.