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Escom losing billions in Egenco, Aggreko deals

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Electricity Supply Corporation of Malawi (Escom) is losing billions of kwacha due to flaws in the power purchase deals it signed with Electricity Generation Company of Malawi (Egenco) and Aggreko, an audit report shows.

Escom’s performance report for year ending June 30 2019 by audit firm Deloitte notes that the parastatal continued to pay Egenco for a monthly average of 309 megawatts (MW) of electricity while, on average, Egenco was producing about 205MW because Egenco charges Escom per its installed capacity and not the actual electricity generated and delivered.

Energy Minister Newton Kambala said the arrangement will kill Escom if not well managed.

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“Escom owes Egenco about K40 billion in unpaid bills and is paying millions of kwacha per month to Aggreko to honour the emergency power generators deal.

Despite Escom’s sour deals, the company is also dogged recent revelations of high levels of corruption, mis-procurements, and abuses of office during the Democratic Progressive Party led administrations that led to the company losing also billions of kwacha in the process.

“I spotted this from the word go and I have already spoken to Egenco that this arrangement will kill Escom. I am personally against that arrangement and we need to manage it.

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“As we are talking, Egenco and Escom are in talks that I initiated. Anytime they will agree either to go into a special arrangement of how they can compensate each other or completely stop the capacity charge. Of course capacity charge is a normal arrangement but the problem is that Egenco was born from Escom and most of the equipment Egenco has was owned by Escom as a mother company,” Kambala said.

He said the capacity charges in power deals work as an incentive for people to invest in power generation.

“Ordinarily, you do not expect consumers to use all the power in a country which has sufficient power. If you do not pay for installed capacity, there will be no incentive for anyone to increase capacity for their generation and that creates insecurity,” Kambala said.

At the same time, the report noted that power which Escom buys from Aggreko is too expensive as pegged at an average of K216 per kilowatt per hour (Kwh) compared with Egenco’s hydro generated power which costs K31.8 per Kwh.

The audit also noted that purchasing cost of Aggreko’s power at K216 per Kwh is even more expensive than Escom’s electricity selling price of K92.78 per Kwh as at June 30, 2019.

Kambala again said the Escom and Aggreko deal is unsustainable, adding that government is looking for a more economical source of energy.

“Much as we agree that bringing Aggreko into the country was not a good decision, getting Aggreko’s expensive power is much better than having no power at all. Of course this is not sustainable and we are looking at how we can quickly replace that company with something more economical,” he said.

Prior to the creation of Egenco, Escom was responsible for both generation and distribution of hydro electric power in the country.

The company was then split effective January 1 2017 to form Egenco which was charged with the responsibility of electricity generation while Escom was tasked with distribution as a way of improving efficiency.

The unbundling exercise, which was supported by the United States government through the Millennium Challenge Compact, followed what government called implementation of the Power Market Restructuring programme, meant to increase efficiency in power generation and creating an enabling environment for Independent Power Producers (IPPs) to invest in power generation.

Escom entered into the agreement with Aggreko as part of its engagement with IPPs.

Aggreko’s 84 generators have a capacity of 78MW but there been questions on the sustainability of the deal with its electricity being generally perceived as too expensive.

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