Escom in fresh bailout rebuff

 

It never rains but pours for Escom as Treasury has yet again rejected its K58 billion bail-out request to enable the technically insolvent utility improve its operations and provide reliable power supply.

Treasury’s fresh rejection of the Electricity Supply Corporation of Malawi (Escom) demand follows a K58 billion request the parastatal made in May this year to improve efficiency. It

Escom said it largely found itself in the precarious financial position after its split that gave birth to Electricity Generation Company (Egenco) on January 1 2017 as part of the Power Market Restructuring Programme aimed at improving efficiency in the market by, among others, creating separate power generation and distribution entities to spur investment in independent power producers (IPPs).

Confirmed meeting: Mpinganjira

In an interview on Friday, Secretary to the Treasury Ben Botolo confirmed meeting Escom management last week and that Ministry of Finance, Economic Planning and Development rejected the bail-out proposal.

He said Treasury has advised Escom to find other sustainable means of supplying electricity other than diesel generators which have plunged the institution into such debts.

Said Botolo: “An honest answer to your question is, yes, I was with them [Escom management] this week on Tuesday if not Wednesday.

“We were telling them to look at the cheaper modes of producing power. We advised them to say, can we have independent power producers that we have been talking about like solar and wind which are very cheap, they can sell to Escom at a cheaper rate even at four, six or seven cents then their balance sheet would improve quite a lot.

“But if they continue buying [power] from diesel generators then they will be facing challenges because the cost is quite heavy. It is about 50 or 56 cents per kilowatt hour which is unsustainable and the economy cannot handle that for a long time.”

He said Treasury advised Escom management to cut on unnecessary activities draining the institution’s revenue, saying if they do so then they will realise profits to offset current debts and remain afloat in business.

In a telephone interview, Escom board chairperson Thom Mpinganjira yesterday confirmed that Escom management met Treasury officials last week.

But he could not provide details of the outcome of the meeting, saying he was yet to be briefed.

Mpinganjira said Escom chief executive officer Allexon Chiwaya was better-placed to provide details on the matter. However, Chiwaya did not pick his phone on several attempts.

The Escom board chairperson is on record as having confirmed the bail-out request to The Nation in May this year. He admitted the company was struggling due to inefficiencies.

Said Mpinganjira: “We requested for the bail-out of around K50 billion because we are in a deficit of close to the same amount of money. Basically, we were not supposed to be in this position, but we are in this position due to mismanagement. This is due to bad procurement decisions.”

Following Treasury’s initial rejection of its bail-out bid, Escom indicated it would borrow from commercial banks. However, it has emerged that commercial banks have also rejected the loan application because they could not trust Escom due to its prevalent governance weaknesses.

In an interview earlier, Bankers Association of Malawi chief executive officer Violette Santhe said commercial banks could not risk lending Escom after Parliament and Treasury refused to guarantee the loans.

In September this year, Parliament’s Budget and Finance Committee vowed to block Escom from borrowing K30 billion from commercial banks to finance  its K55 billion after Treasury turned down the institution’s bailout request.

At the time, the committee faulted Escom for still being involved in power generation through Aggreko, which is running the diesel-powered generators.

In October, Malawi Energy Regulatory Authority (Mera) rejected Escom’s 60 percent tariff hike proposal spread over a four-year period. Instead, Mera approved 31.8 percent spread over four years with 20 percent implemented effective October 1.

 

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