BPC defends tariff hike
Botswana Power Corporation’s (BPC) reeling in deep structural weaknesses is facing mounting pressure to increase tariffs. According to the Chief Executive Officer, David Kgoboko, the increase is unavoidable, due to financial pressure.
Kgoboko, presenting before Statutory Bodies and State Enterprises Committee said tariffs increase are now viewed inevitable, although implementation will require policy reforms and amendments to existing legal instruments by parliament. The CEO highlighted the delayed tariff adjustments had created a significant accumulation of unrecovered costs, leaving the utility with little room to maneuver. He said the absence of cost-reflective pricing could ultimately force authorities to implement steep corrective tariff increases to recover deficits accumulated over previous years.
“These challenges require deliberate policy-level interventions rather than purely operational solutions, adding that there was an urgent need for the regulator to establish a market-driven tariff framework,” Kgoboko told the committee. Though not formally tabled on Tuesday’s presentation, discussions are reportedly ongoing around a proposal that could see electricity tariffs rise by more than 40 percent across all customer categories as BPC seeks to break even.
The proposal has, however, encountered resistance from the business community, which fears the impact on production costs and competitiveness. In addition, the matter was not brought before the previous Parliament, although there are indications that the Botswana Energy Regulatory Authority (BERA) could revisit it at the next available opportunity. The debate follows BPC’s introduction last year of a revised maximum-demand tariff structure that significantly increased costs for mining companies, the country’s most energy-intensive sectors. Among the hardest hit is Premium Nickel Resources, which is reviving the former Selebi and Selebi North shafts near Selebi-Phikwe.
Company records show that since implementation of the revised tariff structure, PNR’s monthly electricity bill has risen by more than P1 million, increasing from approximately P3.2 million to P5.6 million despite the operation not yet reaching full production capacity. The development has intensified concerns about the sustainability of high-energy industrial operations in Botswana. BPC’s financial position has meanwhile continued to deteriorate under the weight of rising operating costs, growing import dependency and non-cost-reflective tariffs.
Kgoboko told lawmakers that the corporation was experiencing sustained net losses, mounting liquidity pressures and severe cash-flow constraints. Currently BPC is in financial crisis, its debts are high so much that whatever comes in the better percentage has to be passed to creditors to reduce the debt, late last year it was reported to be owing Morupule Colliery Mine (MCM) the country’s sole coal supplier, about P600 million. The mine supplies the utility with close to two million tons of coal annually under a long-term agreement.
Meanwhile BPC has secured external financing worth P1.722 billion to settle accumulated current liabilities and stabilise liquidity. However, the relief proved temporary as recurring expenditure commitments triggered a renewed build-up of debt obligations. Creditor balances have now reached approximately P3.5 billion. The utility is also facing additional strain under the National Electrification Fund (NEF) policy, which requires BPC to collect and remit levies on behalf of government to finance rural electricity connections.
The arrangement has created a mismatch between revenue recognition and actual cash inflows, further tightening liquidity. According to BPC, electricity tariffs currently recover only between 55 and 60 percent of the actual cost of supply, meaning the corporation incurs losses on every unit of electricity sold. Government subsidies averaging P1.7 billion annually have largely been directed toward financing costly electricity imports. Power imports alone account for nearly half of BPC’s total current liabilities.
To restore financial stability, the Corporation is pursuing an ambitious turnaround strategy focused on reducing reliance on imports and repositioning the country as a future net exporter of electricity. Some of the key initiatives include accelerating Battery Energy Storage Systems projects, restructuring the Morupule B remediation programme to restore generating capacity, converting the Orapa power plant to gas and tightening management of electricity import costs.