The proposed 69.7% electricity tariffs hike is an own goal towards the containment of inflation rate—Chief Economist Chifipa Mhango

* Electricity is a key component as an input to production, and its costs crucial to the final product pricing

* This means Malawians should expect a further surge in inflation rate to levels even above 40%

* Processed food manufacturing costs will increase as well as housing utility segment of inflation basket

* This will have negative implications on the already struggling Malawian households’ ability to earn a living under depressed disposable income levels

By Duncan Mlanjira

South Africa-based Malawian revered economist, Chifipa Mhango emphasizes that the proposed 69.7% electricity tariffs hike by Electricity Supply Corporation of Malawi (ESCOM) for the 2023-2027 period “is an own goal towards the fight to contain inflation rate in the Malawi economy”.

At a public briefing on Monday, ESCOM’s Chief Operations Officer, Maxwell Mulimakwenda said the proposed 69.7% tariff adjustment will enable them to advance its daily operations and would be implemented in phases in the next four years.

Backed by Malawi Energy Regulatory Authority (MERA), Mulimakwenda further explained that the proposed tariff adjustment will help the corporation to say goodbye to blackouts, saying it will enable the Corporation to buy enough power from several power producers including from Mozambique.

But Chifipa, who is Chief Economist for his host country’s Don Consultancy Group, says “latest data on annual headline inflation rate in Malawi is at 29.2%, and is among the top 10 highest on the African continent.

“The Reserve Bank of Malawi primary mandate includes price stability in the economy, and the proposed tariff hike will just add more pressures for the Malawi economy.

“Electricity is a key component as an input to production, and it’s costs crucial to the final product pricing. This means Malawians should expect a further surge in inflation rate to levels even above 40%.”

He added that “processed food manufacturing costs will increase as well as housing utility segment of inflation basket. This will have negative implications on the already struggling Malawian households’ ability to earn a living under depressed disposable income levels.

“Latest information as revealed by Malawi Government, through one of it’s officials, suggests 91% joblessness society with a high burden on individuals to support families.

“It is such news which is concerning with the overall impact of the ESCOM electricity tariff hike. What ESCOM and the responsible Malawi Government Ministry should consider is a gradual process to this increase that takes into consideration of the overall impact on the country’s economic stability.

“A situation of such tariffs increases on the overall economy are dire for inflation rate as a key variable in the determining lending rates for the Reserve Bank of Malawi through its monetary policy functions.

“What this means is that the Reserve Bank of Malawi may have to factor in a massive surge in inflation rate projection, and to contain it, would mean increasing bank lending rates from the already current high levels of 22%.”

Mhango further said already the current 22% bank rate and its related commercial or retail bank lending rates “are absurd for businesses and retail consumer borrowers to support investments into the economy”.

“The case of ESCOM motivation for operational financing and capital requirements as reported in one of the local newspapers may be justified, but the historally aspects of how ESCOM has lost funds due to mismanagement and alleged corruption, as reported before, should not be ignored as to why the entity is in the situation currently.

“This burden can, therefore, not be passed on to the consumers in a manner that  may only promote political instability as consumers feel the pain on increased expenditure patterns, in an environment where their incomes are being suffocated.

“I would, therefore,  strongly recommend the responsible Ministry not to let ESCOM off the hook to implement such a massive electricity tariffs hikes, but rather consider a gradual approach. The costs of living are already too high in Malawi as depicted by the current inflation rate,” he said.

Meanwhile, in his reaction to the announcement, Consumers Association of Malawi (CAMA) Executive Director, John Kapito challenged ESCOM to explain on the motive behind the proposed 69.7% tariff hike — describing it as a huge burden pressed on Malawians.

He encouraged consumers and stakeholders to reject the proposed tariff adjustment, saying if ESCOM needs to hike the tariffs, it should never go beyond 46%.

“This application by ESCOM is coming at a time when we had another base tariff where ESCOM did not perform. So the argument is that, what is it that they are demanding for when they failed to perform in the past?

“When you read their document presented to MERA, you will see that they are just playing with the mind of the consumer, they are not going to achieve anything.

“So they should either maintain whatever they had before with no tariff increase, or they should reapply and show all the key performance indicators and explain how they will achieve them.

“We must say no to this application. The maximum they can go is 46 percent,” he said while also taking a swipe at Electricity Generation Company (EGENCO) that it is contributing to the high proposed tariffs and it is time for to start lobbying its dissolution.

He said EGENCO’s existence is just a waste of the taxpayer’s money and was optimistic that dissolving it would minimise some expenditures thereby relieving Malawians from paying exorbitant electricity tariffs.

The proposed tariff increase will see consumers paying an average of K177.26 per kilowatt hour (kWh) from the current average of K104.46/kWh.

“The first application by ESCOM was about 99% and just by dissolving Power Market Limited (PML), the tariff has now gone to 69.7%. The more you take out EGENCO you will see that the tariff will come to 35%.

“What we are doing now is just funding institutions. We just need to collapse them and make one institution, the cost will be reduced. We have an EGENCO that is not adding value and we are saying let us have only one institution and they can have departments therein,” he said.

However, Mulimakwenda further explained that ESCOM’s role as a single buyer makes the applications on behalf of the whole electricity industry.

“We have not had tariff adjustment since March in 2021 although significant economic changes have happened,” he said. “This 69.7% is in our view a very reasonable tariff hike proposal.”

He emphasized that the proposed tariff is for the next four years, will be in phases, saying: “We need revenues to allow us to be buying power so that there is no loadshedding in the country.”

MERA Chief Executive Officer, Henry Kachaje said the public hearing continues today (Wednesday) and Friday in Lilongwe and Mzuzu respectively before settling for a better decision based on recommendations from the sessions.