Escom stressed by voter appeasement

Electricity Supply Corporation of Malawi (Escom) is a limited liability company established under Companies Act in 1998, but derives its operational mandate from government. It is enlisted as a statutory corporation number two with 100 percent government shareholding.

Escom is the genesis of the operational is dual face crisis befalling it whereby registration has to run as a semi-profitable business while it has to align with political interests to offer power on welfare linings as an appeasement pack to voters.

Today, Escom has to grapple with K125 billion in under cost electricity supply losses because it failed to adjust tariffs accordingly against changing cost dynamics on the market.

Worse still, it has to lobby parliamentary committees to reason with Malawi Energy Regulatory Authority (Mera) to agree to price adjustments as loss trajectory worsens against passing time and continuing consumption. Red tape in decision-making coupled with politics over a purely commercial business matter are a suicide poison pill that will nail Escom’s coffin.

In the past, Escom carried out all three streams of core activities: generation, transmission and distribution until it was unbundled into Egenco, Escom and Power Marketing Limited. Splitting was strategic and has enabled each of three entities to concentrate on core activities to maximise potential. It has also killed dependence of loss-making activities to profitable ones, thereby providing room for operational rethink in terms of efficiency and effectiveness to turn around loss-making activities.

Politics and petty public opinions far from objective science of institutional management are elephants in the room restricting Escom turn-around. Continued model of electricity tariff regulation by Mera which has a politically appointed board leaves Escom in a quandary over pricing. Surely purchasing power from Egenco at K140 per kilowatt hour and selling at K104 per kilowatt hour is a loss that any business manager would not miss over four years back-to-back.

Since 2018, Escom has been sending financial reports to Ministry of Finance who are shareholders and Parliament who are endowed with oversight of public institutions. Yet, they decided not to act on accruing losses by way of tariff adjustment because they wanted to impress the public in the mirror of political appeasement. Officers at Escom were also mute as the drama of appeasement unfolded. But economics being a social science, reality was sure to come at some point and that is now.

Solutions are handy and government must be resolute by raising tariffs to make business sense and embrace automatic pricing mechanism to curb unnecessary human interventions in tariff establishment.

Escom must undergo organisational restructuring to adapt to operational dynamics in human resources management, procurement, revenue collection, power distribution and auditing and flash out politics from its system. Most importantly, all public utility companies must be partially privatised at 60 percent where a technical partner would hold 30 percent and the public the remaining at 30. This will help balance off interests and thwart bad decisions arising from political correctness.

Consumer think-tanks and social commentators are proposing electricity tariff subsidy to cushion consumers from eminent price increase. This would be completely unreasonable in a country where 80 percent of the population live in rural areas where electricity coverage is less than four percent. It would be tantamount to subsidising the rich. In fact, K112 billion at Escom is already subsidy by default to the rich in town where 20 percent of the population lives and electricity coverage is below 30 percent which include corporates that were supposed to bear the burden of tariff increase cost.

There is chronic disease of bailout when public institutions run into avoidable economic mess. This is unbecoming because eventually, citizens that think are beneficiaries of such blind economic mercy end up paying more tax in future for willful negligence of some duty-bearers. Bailout entails subscription to governance malaise instead of holding officers to account for their actions under tenets of fiduciary responsibility.

Officers in corporates must re-awaken to the realisation that they are singly, jointly and severally liable for their actions.