Snubbed Escom turns to money market

Post was last updated: June 7, 2018

Insolvent sole electricity supplier, the Electricity Supply Corporation of Malawi (Escom), has resolved to borrow from the money market as a remedy to the institution’s financial woes.

The move follows a decision by Secretary to the Treasury, Ben Botolo, to deny the cash-strapped power producer a K50 billion bailout.

Speaking during a media briefing in Blantyre on Monday, Escom Board Chairperson, Thom Mpinganjira, said the refusal by government has left the institution with no option but to borrow from the money market.

With base lending rates averaging 23 percent in commercial banks, Escom would have to cough about K12 billion per annum in interests as the price borrowing K50 billion.

According to Mpinganjira, prior to seeking the bail-out package from the Treasury, Escom management already asked for permission to borrow from the market.

“The plan B is to borrow from the market. But, as you know, you always get money on the cheap before you can get it on the expensive. So going to government was like maybe we can get money on the cheap and make life easier for ourselves. So it means going into the market and borrowing expensive and paying for the mistakes of the past,” Mpinganjira said.

The Escom chair was, however, quick to note that the power utility would not pass on the additional costs of borrowing from the market to consumers through tariff hikes.

“One thing I can say is that the consumer will not pay for high tariffs because of Escom’s inefficiencies. The job of Mera [Malawi Energy Reguratory Authority] is to make sure that only legitimate cost is passed on to the consumer. Escom has no power to decide what it is going to charge,” Mpinganjira said.

One of the country’s economic commentators, Henry Kachaje, Tuesday said if the borrowing will help improve access to electricity in the country, then it is a necessary evil.

“However, the board should deal with alleged misprocurements to avoid a repeat of this,” Kachaje said.

In its 2018 Economic Report released last week, the Treasury indicated that Escom posted a K6.3 billion loss in the half year ended December 31 2017.

Treasury attributed Escom’s poor financial performance to the deferred 6.72 percent tariff adjustment which was supposed to be effected in 2016 and the increase in tariff by Energy Generation Company (Egenco) from K19 per kilowatt hour (kwh) to K25/ kwh.

The Treasury has also attributed Escom’s loss to the cost of hiring of diesel generators from Aggreko Projects International Limited, which were purchased at an average price of K191.88 million.

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