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GOVT ponders Escom bailout

There seems to be light at the end of the tunnel for debt-saddled Electricity Supply Corporation of Malawi (Escom) as Minister of Energy Newton Kambala says the new administration will consider bailing out the parastatal.

During a meeting with Electricity Generation Company (Egenco) management during his familiarisation tour of Tedzani and Nkula hydro power stations, the minister learnt that Escom owed the power generation company about K50 billion. The Egenco debt plus K40 billion owed to commercial banks put the power utility’s debt portifolio at K96 billion.

But the minister said: “We as government are not ready to give Escom any financial assistance before we establish how they found themselves in this situation.

“It is after this report that we can either give them money as a bailout or give them a guarantee for the banks to assist while we continue to monitor them till they turnaround.

“If we establish that the problem is because they do not have the right people then we will have to change management otherwise we as government will still need to assist.”

Kambala (2nd R) and Liabunya (2nd L) and other officials yesterday

Kambala observed that Escom’s bad financial position was negatively affecting operations of other sectors and stakeholders,  including Egenco; thereby stalling economic growth.

He said: “From the meeting with Egenco management we have established that among its major challenges is the money it is owed by the off-taker, Escom. By not having enough resources to implement some of its projects, Egenco is failing to fulfil some of its core objective.”

If implemented, the proposed bailout will come barely two years after Treasury rejected Escom’s initial request for a K50 billion bailout in May 2018.

In a story published on April 25 2020, our sister newspaper Weekend Nation reported that by end March 2020, Escom owed Egenco K41 billion and National Oil Company of Malawi (Nocma) and Aggreko K2 billion each.

Further, Escom also owed billions to several firms that supplied equipment in deals most of which—according to a report by the National Audit Office (NAO) released in 2018—were either misprocured or had prices inflated.

In February 2018, then Escom board chairperson Thom Mpinganjira indicated that most of the equipment Escom spent money on would not be needed for years and would likely be obsolete by then.

The bad procurement decisions, he said, saw the company stockpile K18 billion worth of equipment.

Escom was now in a position where its current liabilities were rising more than the current assets, thereby resulting in a liquidity squeeze for the company, according to a 2018 Annual Economic Report produced by the Ministry of Finance, Economic Planning and Development.

Explaining Escom’s situation on Monday, Escom chief executive officer Alexion Chiwaya attributed the rising debt to lowering revenue due to Covid-19 pandemic.

In his remarks yesterday, the minister said there was need to prioritise electricity generation projects, observing that transmission and distribution challenges were resolved by the Millennium Challenge Account (MCA) project which upgraded the grid to carry more power than what is currently produced.

“From what we got from Escom, we are using only 40 percent of the capacity of the grid so we would like to make sure we improve on producing more electricity to give people the power they need,” he said.

Egenco chief executive officer William Liabunya said the firm was hopeful that the debt would be settled amicably.

He said: “As government institutions, we believe the government through the Ministry of Energy, is better placed to assist us amicably. Our interface with the minister has shown he is well-versed with the processes and is keen to support us do our work professionally and efficiently.”

Last week, Escom said it welcomed calls for an investigation into reports that the power utility was providing fuel to former governing Democratic Progressive Party functionaries.

In April this year, the Anti-Corruption Bureau said it had concluded investigations into a K1.4 billion procurement scam at the power utility and called for the prosecution of suspects.

A memo, titled ‘Allegation that between 2015/16 Escom made procurement worth K1.4 billion without complying with procurement procedures’, lists the suspects to be prosecuted for neglect of official duty under Section 121 of the Penal Code.

The probe followed a complaint ACB received on September 21 2016 from an informant that there was political interference in the manner the contracts as well as payment to suppliers of over K4 billion were made.

The complaint added that goods were supplied without proper documentation and that procedures were not followed, a development that led to the resignation of Escom director of finance Betty Mahuka.

A confidential report titled Report on Building and Unleashing Escom’s Potential in the New Environment, dated February 7 2019,detailed failure of the procurement, stores, distribution and financial management functions as well as indiscipline and poor organisational culture.

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