Thursday, August 6, 2020

Beware, another electricity tariffs hike coming your way

The public uproar over increased electricity costs has not deterred Botswana Power Corporation (BPC) from pressing ahead with raising electricity costs in the next three years, arguing that it is the only way to get the struggling power utility out of a precarious financial position. 

This week, Botswana Energy Regulatory Authority (BERA), laid bare BPC’s plans to increase electricity tariffs by 13 percent between 2021 and 2023. The energy regulator has invited the public to comment on the proposed tariff adjustments, a development likely to attract a backlash. 

BPC’s decision to increase electricity costs by 22 percent in April drew a wave of criticism from consumers, decrying the excessive costs. BPC defended its move, explaining that the tariffs currently charged are not enough to cover operational costs of suppling electricity. 

In pushing for additional increments to tariffs, BPC says its weakened financial position can be traced to the non-cost reflective charges, with other operational losses made worse by the defective Morupule B power station, which has led to high cost of imported electricity. 

BPC is also feeling the pressure from government’s anticipated belt tightening measures. The government, which is dealing with slow economic growth, has advised that  it will  reduce subsidies given to state owned entities (SOEs), while also planning to privatise some. 

“Government continues to subsidise the corporation in order to cushion the impact of non-cost reflective tariffs, but this subsidy has reduced significantly over the last 5 years. The cumulative tariff increase is lower than the cumulative subsidy which is indicative of the revenue mismatch,” said BPC in its submission to the energy regulator, seeking approval to increase electricity charges. 

BPC believes that if BERA could approve its proposed tariff adjustments, which is a 5 percent tariff increase in 2021, then another 4 percent increase in 2022 and a 4 percent increment in 2023. The power supplier says it requires a healthy liquidity position to undertake overdue refurbishment of its transmission and distribution infrastructure. 

If the tariffs are approved, BPC has projected a turnaround in the corporation’s financials, anticipating operating profits in the next five years. The power utility is also planning to reduce imported electricity, something which will lower costs for the struggling entity. 

With the country’s average maximum demand of 610 MW and peak demand of 702 MW, BPC has failed to generate enough power to meet local demand, relying on imports to fill the gap. The corporation’s owned power plants, the 600 MW Morupule B and the 132 MW Morupule A, are operating below capacity, with Morupule A’s availability rate estimated at 70 percent while Morupule B’s availability rate is 31 percent. 

The big coal power plant is currently undergoing remediation process at the contractor’s expense. Morupule B was commissioned in 2012, gobbling nearly P10 billion, but has never been fully functional, with only half of the four units functioning most at a time.

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