Escom digests 32% tariff hike impact

Post was last updated: October 5, 2018

By Taonga Sabola:

Financially squeezed Electricity Supply Corporation of Malawi (Escom) has said it is still digesting the full financial impact that Monday’s reduced tariff hike would have on its operations.

Malawi Energy Regulatory Authority (Mera) on Monday gave Escom a four-year 31.8 percent tariff hike which is 28.3 percentage points shy of the 60.1 percent the power utility firm was looking for.

Asked whether the development would not deteriorate the company’s already worse financial position and prompt borrowing, Escom Board Chairman, Thom Mpinganjira, said the corporation is computing the full impact of the decision.

Escom has been sailing through troubled waters in recent months due to, among other things, bad procurement decisions which resulted in the firm buying equipment it does not need.

Mid this year, Escom asked Treasury for a K50 billion bailout package to keep its operations afloat, a development the fiscal authorities turned down.

This left Escom with no option but to turn to the money market.

However, the Budget and Finance Committee of Parliament vowed to block the move.

Mpinganjira Wednesday said he was waiting for a detailed analysis of the impact of Mera’s decision from the Escom team.

He was optimistic that, by today, the firm would be able to establish the true meaning, in terms of numbers, of Monday’s decision.

In the half year-ended December 31 2017, Escom has posted a loss of K6.3 billion, a development Treasury attributed to the deferred 6.72 percent tariff adjustment which was supposed to be effected in November 2016 and the increase in tariff by Energy Generation Company (Egenco) from K19 per kilowatt hour (kWh) to K25/kWh.

Treasury also attributed the loss to the cost of hiring diesel generators from Aggreko Projects International Limited, at an average price of K191.88 million.

“Following these developments, the current liabilities of Escom have been increasing higher than the current assets, thereby resulting in a liquidity squeeze for Escom, as shown by the current ratio which went down to 1.88:1 in 2016/17 from 2.5:1 reported in 2015/16. This position is projected to further go down to 1.46:1 at the close of the 2017/18 financial year.

“Consequently, the working capital for the corporation also declined to K21.4 billion in 2016/17 from K34.8 billion in 2015/16 and prospects indicate that it will further decline to K16.4 billion by the close of 2017/18 financial year,” reads the report in part.

On Tuesday, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) hailed Mera for not granting Escom its wish in as far as the base tariff application is concerned.

MCCCI Chief Executive Officer, Chancellor Kaferapanjira, said there were a number of inefficiencies that were incorporated in Escom’s request.

“Our efforts have, therefore, borne fruits as Mera, who we lobbied, did a good job in scrutinising the request.

“An increase was inevitable in order to achieve cost reflective tariff but the extent of the increase was the issue to us. So coming down from 53 percent to 20 percent in the first year is a plus to us,” Kaferapanjira said.

But the Centre for Social Concern has described the continued rise in electricity tariffs as inconsiderable and a mockery to the citizenry.

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