MERA Speaks on Escom Application

Dr Magalasi Ceo

The Malawi Energy Regulatory Authority (Mera) has been consulting members of the public on a base tariff application by the Electricity Supply Corporation of Malawi (Escom). The proposed average rate is at 60 percent to be spread over a period of four years between 2018 and 2022.  The Daily Times Newspaper William Kumwembe engaged MERA Chief Executive Officer, Dr. Collins Magalasi, on the issues:

 

Where is Mera drawing its mandate from to engage members of the public over Escom’s base tariff rate application?

Mera derives this mandate from Section 16 (5) and Section 17 of the Electricity Act No. 22 of 2004 and Section 30 of the Energy Regulation Act No. 20 of 2004.  It is a requirement that during any review of the electricity base tariff the regulator should allow stakeholders and the general public to make comments and observations on the application and how the new base tariff application impacts them.

 

How consultative has the process been?

We have been flexible and have provided sufficient room for gathering feedback on the application. For a period of about six weeks we welcomed comments and observations on the electricity Base Tariff Application.

The Base Tariff Application was published on the websites of Mera and Escom, and the two institutions emailed soft copies of the application and provided hard copies to all interested parties upon request.  Initially, the period for receiving written comments and observations was from 25th June – 15th July. The period was extended to 2nd August, 2018.

Thereafter, Mera organised three regional public hearings as a platform for service providers, policy makers, utility customers, investors, financiers and other stakeholders in the energy sector to make contributions in the discussion on the new Escom Base Tariff Application submitted to Mera.

The hearings further afforded stakeholders and the general public an opportunity to understand the basis of the proposed base tariff and a new base tariff setting framework which reflects the unbundled electricity market in Malawi.

The first public hearing was held in Blantyre on 6th August 2018; the second hearing was held in Lilongwe on 8th August and the last was held on 10th August 2018 in Mzuzu.

At the public hearings stakeholders representing a wide range of interest groups availed themselves and freely provided their comments on the Escom Base Tariff Application.

Given that there could still be some who were not able to participate in or present their views at the public hearings, Mera further extended the window for receiving feedback to 17th August.

 

Is the application all about Escom’s wish to raise price of its electricity?

The Base Tariff Application covers a number of issues namely:  settlements of energy purchases from power producers, operation and maintenance costs of existing and new infrastructure, investment in system growth and improvement in customer service. It is important to note that Escom no longer generates electricity; but it buys electricity from the Electricity Generation Company (Egenco) and other private Independent Power Producers (IPPs), transmits and distributes the electricity to various customers. The tariff is, therefore, meant to cover all the issues I have just mentioned.

 

What would you say to fears that despite reservations from some sections of the society, Mera might grant Escom all its wishes?

Mera aims to promote Escom’s efficiency as well as interests of electricity consumers. After the public hearings and receiving the written feedback MERA shall conduct a detailed financial, economic and technical analysis of the application and will consider the stakeholder submission and feedback. The comments we have received will enrich the Mera Board of Director’s decision on the 2018 -2022 Base Tariff Application. MERA’s decision will be made independently based on facts that will have been analysed and verified. Mera may, therefore, reduce, or increase, or even maintain the tariff proposed by Escom.

 

Is there a precedence where Mera has either rejected or attached conditions to Escom application?

The review of the Base Tariff happens once in four years. The application that is now under discussion is the third of its kind since Mera became operational in 2009. The first Base Tariff Application was for 2009-2013, the second one for the years 2014-2017 and the current one is for the period 2018-2022.

For the second Base Tariff Application which Escom submitted in September 2013, the utility applied for a 58% Base Tariff adjustment over the four-year period from 2014 to 2017.  After the public consultations and scrutinising the application, the Mera Board granted Escom an overall 37% increase and resolved that the tariff implementation should be phased and spread over the four years, and that tariff increases for subsequent years would be subject to Escom’s demonstrated achievements in meeting the set and agreed performance targets.

The trajectory that followed was that during the second year of the Base Tariff implementation Escom was granted 13.7% on the basis of its performance instead of the planned 18%, and for the third tranche the implementation of an approved 6.4% instead of the planned 8.9% was put on hold pending improvement in service delivery.

I hope that this history gives both the consumer and Escom the comfort that approvals for electricity tariff adjustments are granted on merit.

 

But some customers of Escom contend that there is no justification for Escom to raise its tariffs when power outage is so common?

We have a scenario where Escom’s customers and consumers bemoan the current levels of electricity availability and, on the other hand, Escom suggests that a tariff increase would help it improve its efficiency. We are thus faced with the question: what comes first, the Chicken or the Egg? This is exactly where the regulator comes in to balance the promotion of interests of consumers and facilitation of integrity and sustainability of energy undertakings. At the end of the Base Tariff review exercise we should be able to arrive at a decision that safeguards the interests of both the consumer and the investor.

 

Is Escom not trying to cushion its alleged incompetency and corruption by raising the tariff?

Mera cannot allow a licencee to use a tariff application to satisfy or cover up for inefficiencies. A methodology for setting electricity tariffs is in place and with this tool there should be comfort that the tariff application will be scrutinised and subjected to all necessary assessments.

Aside from the proposed tariff adjustment itself, the challenge standing between Escom and its customers is the issue of trust. On its part, during the public hearings Escom admitted that it is working on rebuilding the projection of the utility’s integrity at various levels.  In addition to Escom’s inhouse measures to address this situation, we believe that regular reporting to the public on such issues as key performance indicators, and contract awards, as may be required by other authorities, could help restore public trust in the utility.

 

What is your take on allegations that this application is being pushed by the World Bank and the Millennium Challenge Account-Malawi?

The Wold Bank and Millennium Challenge Account-Malawi like other stakeholders do have their views about what could inform an appropriate electricity tariff. However, the decision to adjust or maintain a tariff remains with Mera. At the same time, it should be recognised that Mera will consider the merit of the application itself as well as the pool of feedback submitted by the various stakeholders.

 

When should Escom’s stakeholders expect Mera’s verdict over the application?

We expect to arrive at a decision by September.  The Mera Board will appropriately communicate its decision on the Escom application to all stakeholders and the general public through various media.

 

NB: This Question and Answer has been copied from The Daily Times newspaper of Monday, 20th August 2018.