BPC reaches breaking point

MBONGENI MGUNI
Staff Writer | Friday February 26, 2010 00:00

 

The parastatal has forwarded its request for a tariff increase to the Ministry of Minerals, Energy and Water Resources which has reportedly tabled it in Cabinet. A decision on the request is expected soon.

Electricity tariffs were last reviewed in January 2008. Since then, BPC has struggled with a spike in the cost of imported power, higher materials charges, the global recession and its plethora of effects as well as lost revenues arising from its load shedding programme.Recently the ministry's Permanent Secretary, Gabaake Gabaake, characterised BPC as 'broke,' while its Chief Executive Officer, Jacob Raleru, painted a similarly gloomy and desperate picture of the power utility in an interview with Business Week this week.

Raleru said for the second year in a row, BPC's operational costs would fail to outweigh the gains it makes from its investments, resulting in a net loss. The BPC's next financial year will end on March 31, 2010 and the results are expected to make for sour reading.'It's quite critical that we get a tariff review because for the last three years, the BPC has made operating losses,' Raleru said. 'For this year ending in March, the forecast is that we will make a net loss. 'This means that our interest from investments is not able to cover our operating losses.We usually make losses from operations but we often make an income from our investments. However, for last year and the year that's ending, we have recorded a net loss.'

Raleru pointed out that without the tariff review, the power parastatal will run the risk of complicating its funding from the World Bank with regard to the P11 billion expansion of Morupule Power Station. This, he said, is besides the danger of finding itself unable to finance its operations in the short-term.

'The World Bank is involved in Morupule and we have to pay back their funding even though it is underwritten by the government,' he said. 'That loan becomes due once Morupule B starts operating and we will need to be profitable by that time (in order) to pay back that loan.It would bode ill for the BPC and Botswana if the government should have to step in and pay off the World Bank loan.'

With Morupule B scheduled for commissioning by 2012, Raleru said a tariff review now would help BPC return to a measure of profitability within three years. 'If we survive until that point without a review, the tariff that will be required then will be huge, which will be another burden on the economy,' he pointed out. 'In the meantime, we need to be able to finance our operations, power imports, staff and many other costs.'

Raleru also explained that while the BPC is legally required to make a return to the government on the assets it employs, it has not done so for three years. The BPC Act requires the parastatal to operate on commercial lines and ensure that tariffs charged provide a reasonable return, taking into account all pertinent economic and financial consideration. The Act also empowers BPC to decide and recommend to the minister what level of tariffs will enable it to achieve its commercial mandate.

However, it is likely that while acknowledging the BPC's dilemma, Cabinet will be hard-pressed to authorise a power tariff review given the socio-economic impact of such a move. Already, the government has come under fire for freezing civil service salaries and increasing Value Added Tax on consumers just emerging from the recession.

However, analysts expect that Cabinet could award the BPC a 'modest' tariff review or consider a capital injection to keep the Corporation afloat. The utility's CEO declined to discuss the tariffs being sought from Cabinet, saying to do so would be unprocedural.