Unbundling ESCOM: Madise’s take on Atupele statement

Minister of Energy, Atupele Muluzi is quoted by Nyasa Times on 14 July 2014[1] as saying: “We would like to separate the functions of ESCOM into electricity production, distribution and marketing and this will be run by autonomous institutions away from political interference”. As a student of regulation and from my experience in energy regulation and the energy sector, below are my views.

1. Letting ESCOM free from political clutches and claws of politicians is a good and noble thing. However, we have been there before and as they say the taste of the phala is in the eating – let us see how the Minister will resist his fellow politicians who want ‘orders’ – it is the ‘orders business’ that kills organisations such as ESCOM.

2. I hope the Minister is aware that this is not the first time we have been told this. last time it was when his father was President. The move to fully unbundle ESCOM was resisted because they wanted to sell the lucrative parts of the business to some business magnates! Then it was to unbundle it into generation; transmission and distribution. I hope this is not “Attempt Number 2” of more-of-the-same! I hope that the Minister has done his homework well and realizes that fully unbundling a vertically integrated entity like ESCOM has consequences for a country like Malawi with great income inequalities. The distribution unit is always the money-spinner.

The generation unit is the money-sinker. Most countries who have unbundled (and are now regretting) try to keep the transmission at least under state control. There are reasons why in poor countries, it is recommended to have electricity and water utilities under [some form of] state control.

Already ESCOM operates as a holding company with distinct business units. Maybe the model can be enhanced and improved. I would hesitate to fully detach the units making them autonomous [at this stage]. The energy costs may soon become unbearable.

The example of the de-regulated market in the UK is there for those who wish to see how the poor can be ‘shut-out’ and ‘freezed-out’. On the other hand, Électricité de France (EDF) has remained a well operated and managed state entity and is now operating in other jurisdictions like the UK! Maybe we can learn lessons from this? To attain efficiency does not [always] equal to unbundle.
3. Is the Minister aware that ESCOM is already a private company and no longer a parastatal? If so, shouldn’t the company start ‘behaving’ like one? For starters, we can start with stopping the Statutory Corporations from appointing the ESCOM Board and issuing directives and controlling ESCOM as a parastatal. ESCOM is no longer a statutory body. It is [since the late 1990s] a private company owned by the Government. The Minister may also need to revisit the instruments incorporating ESCOM as a company. It is not the Ministry of Energy in charge of ESCOM (as representing the major shareholder), it is the Minister of Finance!
4. On a more broad level; shouldn’t it be a government policy to let all state companies (whether parastatals or not) free from political interference anyway? What about ADMARC? The Water Boards, MHC etc?
5. Coming back to the ‘poor state of electricity’, is the root not in the deprivation that the generation sector has endured especially in post-one party era? Is it not time we had a massive investment in generation? There is talk of a Chinese firm building a coal-fired 500 Mega Watt generation plant in Mwanza. But is this enough? Shouldn’t we be looking at ensuring that we have enough energy production not only for now but for the next 10-20 years?

How will the customer base be expanded if there is no energy ‘reserve’ to connect them from? And investment in generation is capital intensive with returns over a long-term. Maybe the Minister need to seriously consider investment in the generation and transmission sectors. The distribution is self-financing and should take care of itself.

Without a reliable energy source, we should forget about developing the country and attaining ~7% growths in the economy. Meanwhile as we await for investment (and ensure energy security), should we not be revisited the interconnection with Moçambique?

The above notwithstanding, the Minister should be applauded for the bold stance to remove ESCOM from political interference but let us hope his fellow politicians are on the same wavelength with him!

•  For the full article see: http://sunduzwayo.blogspot.co.uk/2014/07/unbundling-escom.html

[1] http://www.nyasatimes.com/2014/07/14/atupele-says-escom-to-be-free-from-political-influence/ accessed 14 July, 2014.

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