Transferring single buyer licence from Escom
By Kandi Padambo
Continued from Wednesday
In early 2020, it was reported that Escom management was coerced by the Ministry of Energy, through its principal secretary, to transfer the single buyer licence to a newly formed State-owned company, Power Market Limited (PML), blatantly ignoring the provisions of the Electricity Act, sound professional advice and the Companies Act, as the national power utility was a limited company.
The Malawi power market, with an installed capacity of less than 500mw, the lowest in Southern Africa, opted for establishing a fully incorporated State-owned company, dependent on the sweat and toil of the other licensees.
The 2018, a World Bank Systematic Country Diagnostic report attributed Malawi’s poor development performance, compared with other countries in our region, some of which had suffered civil wars and other conflicts for years, to “weak governance and institutions”.
It is not the legality of incorporating a new State-owned company or whether or not transferring of licences is allowed under the Electricity Act, as some have parochially argued, that should be an issue but whether or not such actions took into account relevant considerations let alone respecting the tenets of good governance and provisions in extant law.
Even shallower and whimsical is the contention that forming a new company for the dependent duties and functions of single buyer would increase competition and attract more IPPs.
There are more IPPs in Mozambique, Zambia and Tanzania who sell electricity to vertically integrated State-owned power utilities than in the Malawi power.
What will attract IPPs to enter into our power market is the guaranteeing to all generation plants of fair dispatch, non-discriminatory access to the transmission system, accurate and fair metering, prompt settlement of transactions among licensees and generally a level playing field overseen by a regulatory authority which is seen by all stakeholders as genuinely independent, transparent, objective and unbiased.
All these attributes are, under the Electricity Act, outside the purview of the single buyer. That a separated single buyer is the way to attract more IPPs and promote competition is a fallacy.
Actions such as what the Principal Secretary of the Ministry of Energy took clearly vouch for the concerns of weak governance and institutions in our country.
Which IPP would be encouraged at learning that an issued licence in the Malawi power market, valid for 25 or more years, could without cause be so easily taken away after a mere three years, at the stroke of the pen of the head of a supervising government ministry?
When Government took away the Single Buyer licence from Escom we faulted it. For restoring it to the rightful holder we commend it.
The focus now should be on the future and what steps should be taken to prove wrong the prophets of doom. Key stakeholders such as Escom, Malawi Energy Regulator Authority (Mera) and government are of relevance.
Let us turn to each.
The English have two proverbs which always come to my mind every time the issue of Escom enters public debate. ‘Give a dog a bad name and hang it’ and ‘He who wants to beat his dog will always find a stick’.
Escom has been portrayed as a mismanaged, incompetent, mis-procuring and corrupt power institution. Yet the trail of almost all the major scandals involving billions of kwacha at the company often revealed that Escom management was simply dancing to a tune being played elsewhere above.
The respected Political Economy Analysis Report and the Forensic Audit Report commissioned by the Auditor General amply substantiates this.
IPPs, current and potential, apart from timely payment, will seek fair and equal treatment.
The Single Buyer unit in Escom, to interact with them, need credible ring-fencing. Ring-fencing can be described as the separation of accounts, business activities and governance of an entity, without being completely taken out of an organisation, to allow the ring-fenced unit provide its services effectively while the remaining part of the organisation can provide services in a competitive market.
Escom was able to create ring-fenced Strategic Business Units which worked so well before interference doomed their course.
The ring fencing can and should be complimented by a code of conduct for managers and employees of the embedded single buyer unit.
The objectives of the Code of Conduct should be:
- To outline the fundamental principles of conduct that the Single Buyer and the management and employees of Single Buyer are expected to follow;
- To emphasise the duty to maintain independence and avoid conflicts of interests by the Single Buyer in performing its functions;
- To promote transparency and market confidence in the operations of the Single Buyer;
- To serve as a reference guide for the employees of the Single Buyer. Employees of the Single Buyer unit will have to be provided with periodic training about the Code of Conduct and its breach should attract stern disciplinary action including termination of service.
The scope of internal and external audits will have to be extended to cover enforcement and monitoring of the Code of Conduct.
Another important component in the governance of the Single Buyer unit must be Single Buyer Rules enforced by Mera and customised to the new scenario.
While ring-fencing of the Single Buyer Unit by Escom is to ensure credible internal autonomy, Mera’s ring- fencing rules should be to ensure stakeholder confidence.
Mera-enforced ring-fencing in our market could have the following broad objectives:
- Avoiding cross-subsidisation by using revenues to subsidise other business units and operational activities before fully settling regulated obligations.
- Preventing Escom from using regulated revenues for other activities or projects before settling dues to IPPs and other priority stake holders
- Ensuring non-discrimination so that Escom treats any related businesses and third parties on an equal basis.
- Information sharing – providing relevant information to all commercial parties on equal basis to support competitive market outcomes.
The regulatory authority should also be concerned with the internal ring-fencing of the Single Buyer function within Escom and satisfy itself that it is working well.
It should also monitor the strict enforcement of the Code of Conduct which should be filed with the authority.
Finally, the management and board of Mera should be as vigorous in regulating our power market and its tariffs as in defending good international practice and respect for the law and tenets of good governance.
There will be noises against the good decision, some from unexpected quarters, but these deserve no serious attention, if at all, and government should stand firm fortified by the fact that this has simply re-instated what was in the original power sector reform plans and is in the Electricity Act.
Transferring the Single Buyer licence from Escom and creating an entirely new company for that role is more a case of wanting to beat one’s dog and finding a stick to do so.
The decision did harm not only to Escom but the entire power market and the nation it serves.
As we march on, the hope is that our power utility will be allowed to run as a commercial company owned by government which was corporatised in 1998 and, by a notice in the Government Gazette, delisted from the list of statutory corporations.
Government, as shareholders are expected to do, should confine its intrusions to policy provision and direction not in matters incidental to operations.
Leave that to the well-trained and experienced management and the board. Escom should be allowed to float its own commercial paper and shares on the stock exchange like other national power utilities have done.
This can assist in lessening dependence on donors for construction of generation plants and other critical power infrastructure.
The Malawi Civil Service and the Reserve Bank of Malawi, both entirely dependent on public coffers, exercise part of their social responsibility through sponsoring teams like Civo United and Silver Strikers which are a pride of us all.
Escom, expected to be commercial, once sponsored football and netball teams that helped develop talents of national stars like Mwayi Kumwenda, Chiukepo Msowoya and others who have done the nation proud.
But some one above, with power disjoined from remorse, was not amused and descended the stick. From then to date, Malawi is the only country in our region, if not the entire continent, with a national power utility that shies away from helping in promoting national passions.
The decision by government to restore the single buyer licence to our national utility can only inspire hope and confidence that where there is political will, anomalies, however many and lingering, can be corrected.