A pickle in the pockets of consumers
Mbongeni Mguni | Friday March 6, 2015 14:42
Yesterday, parliamentarians voted to keep the lights on for a little longer, approving a P1.5 billion-tariff subsidy for the Botswana Power Corporation.
The latest funds, which will flow into the utility’s coffers after the start of the new financial year in April, represent the latest sturdy support granted by treasury to a parastatal battling to ‘power Botswana towards prosperity’.
For years, desperation has stalked the hallways of Motlakase House, with executives agitating over grim figures and forecasts, while the 2,000-plus workers nervously eye notice boards for the ‘dreaded memo’.
At the centre of the financial morass are increasingly non-cost reflective tariffs, a swollen arrears book, operational inefficiencies set against variables such as the cost of imported power, exchange rate and fuel prices that are beyond control.
The elephant in the room is the delay in completing the Morupule B power station, which has forced higher power imports and additional costs associated with contractual uptake obligations with Morupule Coal Mine.
The morass can be seen in the BPC’s operating losses over the years, ranging from P563.6 million in 2010 to P311.4 million in 2012. In 2013, the Corporation was set for a P1.6 billion operating loss before a tariff subsidy.
While the legal eagles work out recourse over Morupule B and the politicians seek long-term answers on BPC’s sustainability, it is the tariff that has policymakers caught between a rock and a hard place.
Lobbyists argue that a cost-reflective tariff would take care of the costs of imported power and fuel prices, while enabling the Corporation to slowly return to operational stability.
Available data indicates that over the years, the gap between the BPC’s costs of supplying a unit of power and its actual sale price has risen from 14 thebe in 2008-2009 to 28 thebe 2011-2012 and finally 50 thebe in 2014-2015.
At present, the BPC charges about 57 thebe per kilowatt-hour (kWh) for domestic consumption below 200 kilowatts per hour (kWh) which increases to 75 thebe if consumption rises above 200kWh.
Using these estimates, were electricity tariffs to become cost reflective immediately, domestic consumers would be paying P1.07 thebe per unit to 200kWh.
“Notwithstanding the operational challenges BPC is facing, it is also true to say the electricity tariffs are not cost reflective as BPC is losing about 50 thebe on each unit sold,” Energy Minister, Kitso Mokaila said on Tuesday in pushing his budget proposals in Parliament.
“As a result government is obliged to provide a subsidy to sustain the utility.
“To this end electricity tariffs will be gradually adjusted until they are cost reflective.”
Although Mokaila did not expressly say so, a plan is in the offing for the BPC to gently adjust its tariffs in coming years.
The plan replaces a previous one under which tariffs were due to rise by 30 percent in 2010, 2011 and 2012. The original plan, according to energy sector insiders, was eventually set aside in favour of lower increases coupled with greater tariff subsidies to protect ‘low income households and small industries’.
The new tariff plan, hinted at by Mokaila on Tuesday, is bolder.
“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,” a senior BPC executive told Mmegi.
“We expect inflation adjusted tariffs around that time.”
The attainment of cost-reflective and inflation-adjusted tariffs within four years comes amid growing outrage at the level of tariff support the BPC has been receiving over the years.
When policymakers moved away from the 30 percent per year plan and opted to include tariff subsidies, few eyebrows were raised as the economy breathed a sigh of relief at the modest tariff increase.
The initial tariff support was also viewed positively and explained as a stop-gap measure to avoid ‘shock tariff increases’, meet the costs of pricey imported power and thus avoid damage to households and the wider economy.
The bailout amount as well appeared ‘reasonable’ being pegged at P454 million in 2011 and P508 million in 2012.
However, a few furrowed brows appeared in the National Assembly when the 2013 bail-out rose to P871 million, with the Public Accounts Committee grilling then Energy permanent secretary, Boikobo Paya on why more attention could not be paid to greater operational efficiency at the BPC, instead of subsidies.
For the 2014 financial year, the BPC received a handsome P1.49 billion, which again raised hackles in Parliament, before another P1.5 billion for the 2015 financial year, which ends in a few weeks.
Through yesterday’s approval of his budget, Mokaila has secured another P1.5 billion for the BPC for the 2015-2016 financial year. His explanation was simple.
“My Ministry has no choice but to continue extending support funding to BPC given the current per unit tariff they charge their consumers as opposed to the per unit purchase price from their suppliers,” he told legislators on Tuesday.
Even as Mokaila pushed his numbers through Parliament, his mind would also have been on the elephant in the room that triggered many of the BPC’s current woes. His unhappiness with the Morupule B saga was evident in a January 22 interview where he said Government was pulling out the stops to ensure legal recourse against the Chinese contractor.
The legal action will cover the costs of defects and repairs at the plant, as well as costs associated with the billions of Pula Government has spent in stabilising the power situation since October 2012, when Morupule B was contractually supposed to be fully handed over. The latter costs are expected to include the billions spent in support to the BPC for costly imported power. “We commissioned two studies; a root cause analysis and a gap analysis. We know what needs to be done and we are talking to the Chinese.
“We are now more confident than ever before about what needs to be done at Morupule B.”
Away from Morupule B, eyes are also on a raft of bills set for the winter Parliament, which will result in the formation of the Energy and Water Regulator expected to usher the BPC towards tariff and operational stability.