Wednesday, July 6, 2022

BoB governor, BTU put new BPC boss on the spot

The incoming Chief Executive Officer of Botswana Power Corporation, David Kgoboko’s performance will be on trial when Botswana Energy Regulatory Authority (BERA) decides on the power utility’s request to increase electricity tariffs to economic rate of return.

The Bank of Botswana and the Botswana Teachers Union have petitioned BERA that electricity tariff increase by Botswana Power Corporation (BCP) should not be used to cover inefficiencies at the state-owned power utility.

BoB raised the concern in a letter penned in 2020 following a meeting aimed at gathering stakeholders’ comments and suggestions. The letter was submitted after consultations that Botswana Energy Regulatory Authority (BERA) and BPC had held for the utility’s application for the 2021/22 financial year.

Recently, BCP requested BERA through another proposal to be allowed to implement another five percent increase in 2022-2023 and yet another four percent for 2023-2024. BPC was granted a 22% average tariff increase in the 2020-2021 financial year, which was met with outrage by consumers who complained that the adjustment worsened the impact of COVID-19 on personal incomes.

The same sentiments that tariffs should not be used to cover inefficiencies were shared by the Botswana Teachers Union (BTU).

While the Central Bank’s governor Moses Pelaelo informed Botswana Energy Regulatory Authority Chief Executive Officer Rose Seretse that the Bank had no objection to the proposed electricity tariffs adjustment for the 2021/22 financial year, he emphasised the need for improvements in efficiency and effectiveness of service delivery.

“It is recognised that to achieve the intended objectives, this transition should entail significant improvements in efficiency and effectiveness of service delivery, which for the country should be a key contributor to acceleration of economic activity towards attainment of the national aspiration of high-income status,” said Pelaelo.

Therefore, in the absence of market competition (and only monopoly operator), Pelaelo informed Seretse further that “there should be strong governance architecture including regulatory, to ensure that tariff increases are not used to cover inefficiencies.”

In general, the Bank Governor said BoB recognises the need for regular, measured and non-destabilising review and adjustment of electricity tariffs, for cost recovery and sustainability.

Pelaelo said the adjustment of tariffs towards levels that would cover operating costs and, over the long-term, provide for infrastructure development and renewal, is aligned to the national economic transformation agenda.

He recommended among others among others, restructuring and transformation should increasingly directly place responsibility and accountability for operations and funding of the corporation on the leadership (Board and Executive) of the entity; this would include transition towards accessing the money and capital markets on the strength of own balance sheet.

“Second, and as a corollary, this would reduce dependence on Government funding, contribute to programmes for rationalisation and proper targeting of subsidies, and, therefore, reduce the fiscal burden,” he said.

“Third, proper attribution of cost provides incentives for optimum use and preservation of resources and, in this instance, prospects for greener technology and slowing the adverse impact of electricity generation on climate change.”

Echoing Bank of Botswana’s observations, the Botswana Teachers Union called on Botswana Energy Regulatory Authority to “demand that BPC demonstrates strong performance on improving operational efficiency and cost containment. Botswana needs this as part of a balanced approach to commercial viability and sustainability.”

The union said the BPC’s proposal does not appear to be informed to any degree by an assessment of the likely welfare impacts on the households, and the impacts on industry and the economy as whole.

“The proposal is purely introverted, focused on extracting more from users to cover costs, with no regard. Yet, policy best practice, and the reality of the strategic importance of electricity in industry and human welfare, require that electricity tariff adjustments be based on robust Regulatory Impact Assessments (RIAs),” the union said.

The union said BPC appears to rely exclusively on tariff increases to bridge the gap between average cost and average revenue and achieve commercial viability.

The BCP had stated in its proposal that commercial viability “… is achievable through gradual migration of electricity tariffs to a cost reflective status on yearly basis.”

Commenting on this, the union called on the regulator not encourage this reasoning.

“It is dangerous. Electricity is a critical input in production. Higher tariffs could adversely affect the external competitiveness of Botswana firms and products, frustrating export growth and import substitution efforts as well as investment and growth,” said the union.

BERA is still awaiting comments and suggestions from stakeholders among them Bank of Botswana and Botswana Teachers Union and individuals for the 2022-2023 proposal.

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