BPC’s operational inefficiency shouldn’t be passed to consumers (PLATFORM)

Botswana Federation of Trade Unions (BFTU) takes exception at the proposition by Botswana Power Corporation to increase tariffs by 5 percent for Financial Years 2023-24 on the basis that the increase carries potential to hurt households rather than resolve BPC’s financial losses.

In its application to Botswana Energy Regulatory Authority (BERA) for green light to effect a 5 percent tariff adjustment, BPC provided four key reasons attaching a consultation paper providing purported technical details in support of the reasons advanced.

The cited reasons are as follows: a. BPC incurring financial losses due to non-cost reflective tariffs; b. Low availability of Morupule B

Power Station and the increasing cost of imported power; c. Reduced government subsidy not matched by corresponding tariff increases; d. Revenue requirements to meet the operating, maintenance and financing cost of the corporation.

The following is a summation of BFTU’s arguments in response to BPC’s propositions which we also submitted in our presentation at the BERA public Hearing on the BPC Tariffs adjustment:

1. Financial Losses due to Non-Cost Tariffs Essentially, BPC’s argument is that it has been incurring financial losses caused by its pricing system not linked to unit costs of production. BFTU response is that, BPC losses over the years were a result of several cost factors.

These included the effects of the capital costs associated with Morupule B project and other operational mismanagement, causing high operational costs. On the income side, not only is price not the only cause of losses, but its de-linkage with unit cost trends may not necessarily reduce income by the same ratio. Lastly, government subsidy (which is a source of non-operational transfer income flow) may outweigh the effect of non-cost pricing.

2. Low availability of Morupule B and increasing cost of imported power. Here, BPC arguments are (i) intermittent and uncertain supply from Morupule B and (ii) rising unit supply costs of imported power.

BFTU response is that, intermittent and uncertain supply would be a production inefficiency, not automatically a cost issue. It simply reflects failure (which may have its own reasons) by BPC to ensure consistent supply.

How then should such operational inefficiency be passed onto the consumers? The appropriate solution may not necessarily be a short-term price increase, but may need long-term operation reforms. Secondly, low availability is not a continuous factor which require a tariff increase of two years: it is a discrete phenomenon.

Thirdly, BPC has recently informed the nation that it has resolved its supply issues, to the extent that it will become a net-exporter of power to Eskom from the same source (Morupule B) once Plant No 4 goes full stream. It is expected that export of power to Eskom and SAPP will result in significant income flows to the extent that a price increase is unnecessary.

Rising unit costs of imported power may have several causes, including exchange rate fluctuations (and many other production costs) emanating from source countries in the SAPP. Unless the actual effect is demonstrated a 5% tariff increase is broad, general and ambiguous. It may not be the appropriate response.

3. Reduced Government subsidy not matched by tariff increase: BPC argument is that, the subsidy by Government (on households and firms’ connections) has been reduced by an amount exceeding tariff increases.

BFTU response is that, BPC is seeking to use the new tariff adjustment to offset the BERA decision for a zero increase in the current financial year. As stated above, government subsidies (free transfer) outweighs the reduction, in a way similar to a tax reduction.

BFTU view is that BPC argument is contradictory – on one hand, BPC seeks autonomous pricing model and on the other hand, expresses its over reliance on government subsidy. Our argument is that, the extent to which price and subsidy may differ need not necessarily require a matching price increase if overall subsidy from the same source (Government) outweighs/more than off-sets. Subsidies should be viewed holistically and not itemised, to account for cross-subsidisation, by poor consumers consuming low outages.

4. Revenue to meet operational costs: BPC argument is that; it requires a tariff increase to cover operational cost increases. As stated above, BFTU response is that, rising operating, maintenance and financing costs of the Corporation may emanate from several causes.

Again, unless the exact effect is demonstrated, a 5 percent tariff increase is a generalisation and not be the appropriate response. Our previous advice stands: BPC may have to look into internal processes causing rising costs of operating, maintenance and financing costs, with the view to reduce costs. This is a long-term organisational re-organisation issue. It would be unfair to consumers to pay for operational inefficiencies.

Conclusions In conclusion, BFTU made the following submission on behalf of its constituency:

A. BFTU is opposed to a 5 percent Tariff adjustment for FY 2023-24. B. BPC may require long term organisational reforms to deal with rising operational costs. C. Government subsidies more than offset the difference between price stagnation and rising unit costs.

Thusang Butale BFTU Secretary General