PRICE & PROFIT POLICY FOR PUBLIC CORPORATIONS: ELECTRICITY TARIFF HIKE

By Bryson Jumbe

Malawi has a mixed economic system, comprising the public and private sector. That is, some industries are under public control whilst others are under private ownership. 

The past decade, has seen most public enterprises being sold under the much touted 'privatisation' programme. Through privatisation, ownership of public enterprises is transferred into the hands of private entities. 

This is in sharp contrast to 'nationalisation' of industries whereby, the State, through its various corporations, is in control of the operations. Supporting reasons for public ownership of industries include to protect the consumer against monopoly, ensure efficiency of service provision, and for national interest purposes. 

It is due to these and other reasons that privatisation of national industries, which were core to the socioeconomic stability of the country, faced some resistance. Privatization has not been the only problem to our national industries under public corporations. 

Another matter of concern has been the 'price and profit policy'. Recently, the Malawi Energy Regulatory Authority (MERA), approved the proposed 25 percent electricity tariff hike by ESCOM. Is the the increase from about K58.80 to K73.23 per kWh justifiable? [It is also understood that water tariffs for domestic and commercial use have been revised upwards to 15 percent and 20 percent, respectively]. 

First, the following are points to note in regards to public enterprises; They are run not with a view to making profits, but rather to provide services in the public's best interest. There returns are necessary to cover costs and keep operations running - returns are likely spent on maintenance and the like (could this be ESCOM's justification for price increase?) 

As such, prices are not set to make excessively huge profits, nor to make inhibiting losses. That is, setting prices that would necessitate to 'breakeven' - no loss, no profit. Since profit is not their operational objective, they ought to be audited in terms of efficiency relating to 'service provision' and not 'profit'. 

These preceding points, and those mentioned earlier in favour of ownership of industries by public corporations, should provide the basis for discussion on all matters of price and profit policy for industries managed by public corporations. 

The 25 percent electricity tariff increase policy seem unjustifiable for a public run corporation. Even if made in view of the standby generators being procured [initial assessment of operating costs for Mzuzu only is pegged at over K500 million per month], the hike seem not to be in tandem with public corporation objectives. And, for a corporation which for long has been marked by inefficiency and continues to preform below par, it is illogical to increase the fee. We do not even need auditors for expert opinion to prove its inefficiency. 

In addition, other industries depend on power as well. Increasing the tariff would result in goods and service providers in such industries to increase their prices. As a nation coming from or in a period of slow productivity due to the same power outages, this will have dire economic consequences. ESCOM has failed in its operations as a public entity. 

It has failed to provide services in the best interest of the public. Its negligence to maintain and improve its generation capacity over the years to efficiently supply power should in no way be borne by customers. 

It all goes down back to the issue of privatization. 

Should ESCOM be privatised or the power industry 'demonopolised' to allow competition, which is an important ingredient to excellent service provision, in the industry?