The �unweanable� struggle for power
Mbongeni Mguni | Friday December 5, 2014 13:48
No, is the general answer from energy sector players on the chances of BPC becoming a profit-making entity that does not rely on state largesse for survival. At present, and as noted in recent years by auditors, the corporation exists solely through the ‘benevolence’ of government and by extension taxpayers.
For the 2014 financial year, government pumped P1.49 billion as a tariff subsidy into the corporation enabling it to post a profit for the year of P114 million, being the first such since 2008.
In 2013, the sole shareholder had ploughed in P871 million, up from P508 million and P454 million in the preceding years. In addition, government paid P450 million in the current financial year in premiums for the costs the BPC met in securing emergency power, down from P502.6 million in the previous year, as the higher generation at Morupule B limited the need to plug gaps.
Government also underwrote the corporation’s P6 billion loan from the Industrial and Commercial Bank of China through which Morupule B was financed prior to construction contract signing in 2008.
The underwriting, in practice, means government guarantees that each repayment will be made in a timely and agreed fashion. For 2013, the repayment of the loan totalled P354.9 million and in 2014, it was pegged at P377.3 million.
From its own operations and excluding government’s handsome tariff subsidy, the BPC was set to record a P1.3 billion operating loss, the ninth-straight such performance at the troubled parastatal. For the 2014-2015 financial year, the BPC has already received a P1.5 billion ‘operational subsidy’ to meet both its loan obligations and other operating costs arising from the less than cost-reflective tariffs.
Government has defended subsidies for the BPC by saying the corporation was rocked by the energy crisis of 2008 and cost-reflective tariffs would cripple the economy and deny the marginalised in society access to electricity.
In the short to medium term, the BPC’s sole shareholder, says it has had little choice but to support the corporation until its various generation plans crystallise and allow phased in tariff review.
Analysts have, however, pointed out that heavy government subsidisation is not only unsustainable, but places the economy at risk in the case of shocks affecting government revenues. In addition, the multi-billion Pula support robs other competing needs in the economy, such as education, health and national policies such as employment creation and poverty eradication.
“By law, the BPC is supposed to operate as a going concern meaning it meets its operational needs from its own coffers and in fact, remits a return to the sole shareholder,” a public finance expert said this week.
“At present, not only is the corporation exempt from income tax, but it is also a further burden on Batswana by bleeding them dry while offering an unreliable service. It could be argued that the subsidies being paid by taxpayers are actually going towards propping up and covering operational inefficiencies at the BPC. Any profits that come out of the BPC should be going towards lowering electricity tariffs for Batswana, but that is still a long way away.”
Expert opinion has also weighed against tariff subsidies for the BPC. In a study published last year, IMF first deputy managing director, David Lipton said subsidies are unattractive for the private players who want to invest in the energy sector. They exert pressure on balance of payments of net energy importers and crowd out public spending on other social sectors.
“In Africa for example, the losses incurred by electricity suppliers due to subsidised prices have severely constrained their ability to invest in new electricity capacity and improve service quality,” he noted in a study of global energy subsidies and the need for reform.
“As a result, installed per capita generation capacity in sub-Saharan Africa, excluding South Africa, is about one-third of that of South Asia and one-tenth of that in Latin America.”
Lipton’s study found that energy subsidies often went against governments’ intended objectives of granting access to the poorer in society. “Energy subsidies reinforce inequality because they mostly benefit upper-income groups, who are the biggest consumers of energy. For example, in the case of electricity subsidies, a large majority of the poor in Africa receive no benefit at all because they are not even connected to the electricity grid.
“Moreover, because most subsidies are conveyed by controlling prices, the subsidy you receive is related to how much energy you use. So it is no wonder that the greatest beneficiaries are those with cars and air-conditioned houses.”
On government’s invitation, the BPC has laid out plans to wean itself off the national purse. The corporation has spelled out the pre-requisites for financial independence.
“We have a plan and according to it, the financial situation of the BPC is expected to turn around by 2018-2019 and by that time, we expect cost reflective tariffs if everything goes according to plan,” CEO, Jacob Raleru told journalists in March. “We expect inflation adjusted tariffs around that time,” he added.
On average in 2013, the BPC sold a unit of electricity for 60 thebe, way below the production cost of P1.09. The corporation was granted an average 8.5 percent increase in tariffs in April 2014, against the 82 percent required to move to cost-reflective tariffs.
Legislators, meanwhile, have criticised government’s heavy funding of the BPC, pointing out that its woes stem from operational inefficiencies such as the lethargy in debt collection and a heavy structure.
More criticism will come in February, when the full extent of the costs the BPC has been incurring since the Morupule B collapse in September come to light. The corporation has heavily relied on costly premium-rate imports from the region since September, following the collapse of all units.
In the meantime, the close to 2,000 workers at the utility will pray not to fall off deck as Raleru and his lieutenants steer through to the shores of operational sustainability.