Just as the sale of one of the country’s commercial banks formerly owned by the Government of Malawi, the Malawi Savings Bank (MSB), started as a rumour, another rumour about government’s intention to sell, or is it privatise, ESCOM has been making rounds in recent months in the country’s media.
Zodiak On-line and other online publications, for instance, have reported that government intends to strip ESCOM of some of its powers of supply and distribution while leaving generation—considered the heart of the entire process—in private hands. Some media houses have gone further to say that government will complete the dismantling process by 2017.
As bonafide and well-meaning citizens of the country, We felt compelled to share my sentiments on these rumours and whatever government intends to do with ESCOM with the readership here.
Let us start by briefly describing how markets operate. There are four broad types of markets: Free market, Oligopoly, Duopoly and Monopoly; each having different characteristics from the other. The main distinguishing features are the number of players in each industry (where industry means suppliers or firms supplying the same or similar commodity) and availability of information to consumers.
A Free market is a market in which there are many firms, there is information flowing to consumers resulting in consumers making informed decision and there is perfect competition. Under this customers are ultimate beneficiaries in that the price of commodities is determined by the market forces of demand and supply. All the other forms are imperfect market forms in that there is no or little information, there are one to few players and pricing is not determined by market forces of demand and supply; there is deliberate intervention in price determination whose primary motivation is achieving maximum profits. In a duopolistic market, there are only two main players who determine pricing and other behaviours. In oligopolistic market there are few players who usually connive. The worst form of market structure is monopolistic market; there is usually a single player in the market.
The main disadvantage of the monopolistic market is that consumers are always at the mercy of the single player. Prices are not determined by the factors of demand and supply. Usually there is little or no information passed on to consumers; in other words there is no transparency in how decisions are made. At the end of the day customers pay the price heavily. In Malawi we have for example electricity and sugar production. Without government intervention customers are ripped off. Now when you consider this and factor in the fact that certain goods and services are essential in the development of a country, leaving the provision of such goods and services in the hands of independent, let alone private, hands spells doom to the development agenda of a country.
With this information in the background one wonders why our callous government seeks to privatise the generation of electricity knowing pretty well that so far ESCOM is a monopoly. What would be the true motivation of privatising ESCOM? In the case of MSB the lame excuse was that government should not be in the business of banking services. In the case of ESCOM they are hiding behind improving efficiency at ESCOM. It is an open secret that all the inefficiencies at ESCOM are as a result of political interference especially in procurement processes. Given a serious government that has the welfare of people at heart, ESCOM would be run as efficiently as possible without political interference. Unfortunately we have political vultures who prey on ESCOM’s resources. While the MSB’s sale would be excused on apparent competition in the banking industry, the sale of ESCOM would have devastating effects on the development agenda of the country! Nobody should deceive the nation into believing that putting ESCOM into private hands is the way to go in as far as efficiency improvement at ESCOM is concerned.
The important thing the government needs to do is to ensure that there is competition particularly in the generation and retail of electricity. This is only possible if the generation and the retail businesses are sold or leased to different investors. So, for example, we should have 4 different entities running Nkula, Tedzani, Kapichila and Wovwe. There could be two or more retailers which can operate anywhere in Malawi and shouldn’t be regional based to create competition and drive electricity tariffs down. The poles and wires business can be privatised as well but should be strictly regulated since it’s a natural monopoly because of the impracticability of customers to change physical connections from one provider to another. That’s how it works in most developed countries.
ESCOM sale, in the current form, has the potential to derail the development agenda of this country. Ultimately, the final consumer, towards whom government has a social responsibility, will pay the price. ESCOM sale will harm the ultimate consumer.