BPC turnaround hinges on govt political will

Brian Benza | Thursday April 17, 2014 14:35

These plans include the take over by manage­ment contactor, Electricity Supply Board Inter­national (EASBI) from June.

The contractor is mandated with the task of turning around the troubled parastatal dogged by losses, operational inefficiencies and supply gaps into a high performance and profitable or­ganisation by 2018.

The new BPC board chairperson Sebetela Sebetela concedes ESBI’s assignment will not be a stroll in the park but an achievable task if all the stakeholders play their part.

Sebetela told Business Week that the turna­round strategy for BPC has identified three key action items, which all have to be delivered or else the blueprint will not be worth the paper it is printed on.

According to Sebetela, for BPC to turn prof­itable by 2018, the strategy paper stipulates the level of subsidy outlay required while tariffs will need to be adjusted to cost reflective levels. The organisation will also need to be restructured to achieve operational efficiency.

“The strategy clearly spells out the amount of subsidies we will require to achieve the turnaround. However I am not in a position to divulge how much BPC will need from gov­ernment in terms of subsidies but the strategy clearly spells out the amount government is supposed to subsidise the parastatal,” he said.

In 2012 BPC received an P871 million-tariff subsidy that increased to P1.49 billion last year and government is this year set to inject a fur­ther P1.5 billion into the parastatal as a sub­sidy.

Apart from the subsidies, government will need to give the nod to tariff adjustments over the three-year period. Government has previ­ously been reluctant to raise tariffs regularly in an effort to cushion the power consumers whose disposable incomes face constant erosion from inflation against largely static incomes.

But according to Sebetela, government as the sole shareholder in BPC has in principle agreed to adjust tariffs to cost reflective level by 2018.

“For the turnaround to be successful its im­portant not just to focus on what the manage­ment and staff will do.

All stakeholders have to play their part as stipulated by the strategy.

“Our shareholder recognises the need to change and they have pledged to give us the support if we can show that we are running effi­ciently. There is no point in aiming to run BPC as a viable entity and then continue to charge below cost tariffs,” he said.

While Sebetela could not reveal the level of tariffs adjustment required, Business Week esti­mates BPC will need to almost double tariffs in the next three year to achieve profitability.

At present, the Ministry of Minerals, Energy and Water Resources estimates that tariffs are, on average, 50 thebe below being cost reflec­tive. Independent figures made available to Business Week indicate that over the years, the gap between the BPC’s costs of supplying a unit of power and its actual sale price have risen from 14 thebe in 2008/09 to 28 thebe 2011/12 and finally 50 thebe in 2014/15.

Addressing Parliament recently, Minerals, Energy and Water Resources minister Kitso Mokaila said the power utility is losing about 50 thebe of each unit of power sold due to tar­iffs that are not cost reflective.

After this month’s 10 percent average adjust­ment, the BPC charges about 63 thebe per kil­owatt-hour (kWh) for domestic consumption below 200 kilowatts per hour (kWh), which in­creases to 82 thebe if consumption rises above 200kWh.

A kilowatt-hour, also called a unit of power, is the basic guide for pricing electricity.

Using the ministry’s estimates, were electric­ity tariffs to become cost reflective immediate­ly, domestic consumers would be paying P1.13 per unit to 200kWh representing a 98 percent increase for domestic customers consuming less than 200 kWh.