Escom smiles

 Government has resolved the long-standing power purchase billing dispute between Electricity Generation Company (Egenco) and Electricity Supply Corporation of Malawi (Escom) by cancelling the K65.9 billion bill owed by Escom.

This is according to a copy of a report titled ‘Resolution of Billing Disputes between Egenco and Escom’ which we have seen. The report states in its executive summary: “The GoM’s [Government of Malawi] final resolution is that this K65.9 billion debt up to January 2023 should be written-off and starting from February 1 2023, the billing mechanisms adopted by the 2023-2027 base tariff should be applied.”

The report, among others, also observes that

 the payment of the debt amount would only serve to increase the burden of the average Malawian through increased tariff payments and that Egenco did not require the additional revenue to fulfil its obligations and mandate.

In an interview on Wednesday, Ministry of Energy Principal Secretary Alfonso Chikuni confirmed the arrangement and pointed out that the pricing of Egenco tariff was premised on the foundation as an investor.

Said Chikuni: “However, we argued that Egenco’s assets were already financed by the public and that the latter should not be penalised by paying more on assets they already bought.”

Secretary for Treasury Macdonald Mafuta-Mwale in a letter to Escom Board chairperson dated June 27 2023 Ref.Mof/ ST/SC/7 titled ‘Resolution on the power billing dispute between Egenco and Escom’, communicated that following the initial March 14 2023 meeting, additional engagements were made with Ministry of Energy, the Malawi Energy Regulatory Authority (Mera), Escom, Egenco, and the Presidential Delivery Unit to give further analysis to the issues.

The letter adds that the meetings, among others, determined that the disputed debt has primarily accrued through a variety of reasons, including interpretations of the hydro Power Purchase Agreements (PPAs) and the mechanism that were applied in the 2015 tariff methodology.

“An agreement was [therefore] reached to modify existing mechanisms applied in the 2018-2022 tariff submission as follows:

lThat tariff charges should be split 70 percent Capacity and 30 percent Energy as agreed during discussions with Power Market Limited, Egenco and Escom and that there should be no claiming of depreciation and return on grant-funded assets,” reads the letter in part.

lThat there should be no claiming of depreciation and return on grant-funded assets.

lThat asset values should be historical as opposed to indexed for the sake of consistency.

According to the letter, the meetings also found that: “With a 70/30 split, the K65.9 billion outstanding bill would be reduced by approximately K4.1 billion.

Returning to the assets, historical value would reduce the expected billed amount by K112.7 billion. This would mean that Escom would have overpaid Egenco by K46 billion (K112.7bn – K65.9bn).”

The letter adds that a review of the current liabilities of Egenco by Mera also found that as of February 2023, they were significantly lower than the outstanding debt, in the region of K3.8 billion.

“In light of these findings, it is recommended that this debt of  K65.9 billion accrued to the 31st January 2023 should be written-off and that the mechanisms adopted by the 2023-2027 base tariff be applied to start from February 1 2023.”

When contacted on the development, Parliamentary Committee on Natural Resources and Climate Change chairperson Werani Chilenga said they are expected to present a detailed report on the issue next week.

Said Chilenga: “There are more details in the report than what you are asking for. I will be pre-empting the report contents if I respond now.”

Egenco spokesperson Moses Gwaza asked for more time before commenting and had not done so by press time. But Escom spokesperson Kitty Chingota said government’s decision to write-off the K65.9 billion will improve the parastatal’s financial position.

Said Chingota: “For instance, Escom can now use its balance sheet to access cheaper loans to finance critical infrastructure investments, which would in turn result in improvement of the services that Escom delivers to its customers.”

In a telephone interview on Thursday, Consumers Association of Malawi executive director John Kapito said the invoices which Egenco was billing Escom were fake, because they were overpriced.

He, however, wondered whether a small economy like Malawi needs a separate body of power generation such as Egenco.

In August 2020, Egenco lodged a complaint to government that Escom owed it about K53 billion in unpaid electricity bills.

Egenco had argued that it was failing to increase electricity generation due to the bill which it described as a constraint in its pursuit to generate more electricity.

On August 25 2020, Vice-President Saulos Chilima, who at the time was Minister of Economic Planning and Development and Public Sector Reforms, intervened on the matter.

He announced that going forward, Escom should first make a part payment of K11.7 billion by December 31 2020.

The rest of the arrangement was that 60 percent of the balance or K25.2 billion, will have to be paid by December 31 2021 and that the Ministry of Finance would facilitate that Egenco issues a credit note for the remaining balance.

The dispute between the two entities and the liability of K65.9 billion for Escom arose from the calculation method for invoicing Egenco’s hydropower plants, which has led to disagreements in the billing of the electricity purchased by Escom.

To facilitate trading between Escom and Egenco, two instruments were developed, namely tariff methodology and Power Purchase Agreement (PPA).

The PPA between Escom and Egenco was signed in October 2018, but was backdated to March 2018.

In November 2020, the Secretary to the Treasury in conjunction with the PS for Energy directed that Escom and Egenco should discuss with PML the areas that needed to be reviewed in the PPAs, and thereafter submit to Mera the revised PPAs for final approval