In a bid to put Botswana Power Corporation on solid financial footing, government announced this week that it will hike electricity tariffs by 30 percent for medium and large businesses as well as water pumping companies.
According to the announcement, the increase in tariffs is expected to come into effect from June 1, 2011.
It states that the tariff adjustment is a temporary measure triggered by the BPC Act, section 17, requiring the corporation to charge cost reflective tariffs in order to meet operating and maintenance costs. “The charges should afford it to invest in new infrastructure, pay debts and shareholder dividends. The requirement has not been met,” reads the statement.
Citing the reasons for failure of the corporation to meet the requirement of the act, auditor general for financial accounts of the government, Robby Sebopeng, said the corporation is unable to obtain adjustment of the electricity tariffs sufficient to recoup cost increases from the consumers, including the government.
The auditor general states that this resulted in the total loss of the corporation rising from P133.62 million in 2009 to P1.57 billion in 2010.
“The financial sustainability of the corporation in the medium to long term is at a very serious level of risk. It’s viability rests upon the adjusted electricity tariffs, ” he said.
Sebopeng shows that the company recorded a negative current assets position of P1.04 billion after establishing current assets and liabilities amounting to P1.36 and P2.40 billion respectively.
“As the position stands, this represents an unfavorable situation for the corporation,” he said.
The 2009/2010 financial audit report for BPC states that, “with the corporation continuing to charge less than what it had cost it to connect electricity to consumers, debit balances increased from P479.62 million in 2009 to P718.64 million in 2010. The corporation is forced to recover the debit from the government, otherwise it will not continue.” It noted that in normal circumstances this amount should have been recovered through subsequent connections from individuals.
The costs of importing electricity and other operating expenses for the corporation escalated from P1.73 billion pula in 2009 to P2.90 billion last year. According to a press release from the corporation, more than 50 percent of BPC’s operating costs go towards the importation of electricity. It shows that during the 2011/2012 financial year it is expected to pay P1.32 billion to purchase electricity from regional partners.
In addition to tariff adjustment to minimize the severity of the unfavorable financial situation plaguing BPC, the government has since last year waived the requirement for dividend. According to the 2011/2012 financial budget government approved P508 million revenue support for the corporation. Thus government will expend close to a billion pula to subsidize the cost of electricity to all customers. This is part of its effort to balance the need to have cost reflective tariffs with affordable electricity to users.
Government is also meeting the costs of diesel-based emergency power facilities, comprising of 70 MW in Matshelagabedi and 90MW in Orapa.