The Botswana Power Corporation (BPC) may be forced to hike its tariffs following a warning by auditors that its future as a going concern is in doubt.
BPC is unable to meet its liabilities after suffering an operating loss of P63.41 million in 2007 and another one of P85.77 million in 2008. Auditors have recommended that management should “collaborate with government to ensure the going concern status of the corporation”.
PricewaterhouseCoopers, a private firm of auditors, and the Auditor General have both observed that BPC had not complied with the going concern Act.
The audit report by PricewaterhouseCoopers stated that BPC had failed to comply with Section 17 of the BPC Act “which requires it to conduct its affairs on commercial lines so as to produce a net operating income by which a reasonable return can be measured.
Relying on the audit by PricewaterhouseCoopers, the Auditor General, in his report for the financial year ended 31 March 2008, stated that “the financial statements have been prepared on a going concern basis. In terms of the provisions of Section 17 of the Act, the Corporation has to have sufficient net operating income after depreciation to meet the interest payment on borrowings.
However, in the year under review, the corporation had made an operating loss of P85, 7 million which rendered it incapable of meeting the interest payment of P11.00, million on its borrowings”.
The auditors further warned that the “operating loss would continue to increase as the cost of purchased power has increased substantially and is expected to increase further”.
The Southern African region is facing a shortage of power supply and this has had a negative effect on BPC as the supply of power from Morupule Station is inadequate, and consequently relies heavily on supply from neighbouring countries.
“The cost of purchased power has increased significantly and is expected to increase further as demand exceeds supply. The current status is that the corporation is not passing on the cost of purchased power to consumers through increase in tariffs. The under recovery is borne by the corporation,” states the Auditor General’s report.
BPC’s financial situation is not helped by interest free loans to customers, amounting to P58 million in the year of account, based on a directive from Government under the Rural Electrification Scheme and Hire Purchase Scheme. The report states that the corporation “had not accounted for the full effects of granting credit to consumers at below market rates as required by IAS 39 ‘financial instruments: measurement and recognition.”
BPC incurred an opportunity cost of P 4.5 million being lost interest income, by providing the interest free loans.
The auditors recommended that management should consider compensation opportunities for the lost interest on the loans in order to improve its performance, among other things.