LEC seeks 31% power tariff hike

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Bereng Mpaki

The Lesotho Electricity Company (LEC) is seeking permission from Lesotho Electricity and Water Authority (LEWA) to increase electricity tariffs.

The power utility company says it needs a 30, 9 percent tariff hike for the 2021/22 financial year to cushion its operations as prices for its key inputs have increased.

LEC is a corporate entity operating electricity transmission, distribution and supply businesses under the regulation of LEWA.

The state-owned utility company in its 2021/22 tariff review application to LEWA highlighted that it will need a minimum of M1, 24 billion to finance its operations.

This amount exceeds the 2020/2021 financial year revenue by M300 million

LEC’s major cost drivers for the financial year include bulk costs estimated at M621 million, repairs and maintenance estimated at M66 million, depreciation estimated at M137 million, labour costs estimated at M216 million and operating costs estimated at M125 million among others.

“The proposed 30, 9 percent is the percentage increase the breakeven- point that will sustain the operations and finance the proposed budget of the company given the fact that, LEC has not been allowed an increase in the last two consecutive financial years,” LEC said in the application.

“The LEC is mindful of the challenges that have been brought about by the novel corona virus as well as the restrictions on movement and commerce. It is critical to highlight that the LEC’s projected notified maximum demand remains unchanged, however, the prices of key inputs, especially the bulk purchases and operational expenses have increased.”

LEC warned of the dangers that may arise if it does not get a favourable tariff review this year.

“Should the LEC’s minimum revenue requirement not be granted, the LEC’s will have to forego some or all of the components of the following key activities: network maintenance, amelioration industrial relations, staff wellbeing and addressing remuneration disparities, improvement and integration of information systems, network automation and management.

“The LEC’s inability to attend to the foregoing will only compound a situation that is already currently untenable, and will further increase the costs when eventually attended to, as these activities are, critically, intended to improve the operational efficiency and thus lower the cost of doing business.

“The LEWA will recall that LEC’s 2015 assets condition assessment study indicated a need to prioritize maintenance of key assets. The regulator is, however, informed that cashflow challenges and declining tariff determinations have contributed to the LEC’s maintenance backlog. Continued failure to award the LEC the required tariff determination will exacerbate the existing situation and imperil the LEC and the economy of Lesotho in a in a manner that cannot be overstated.”

Commenting on LEC’s application, the chief executive officer of the Private Sector Foundation of Lesotho Thabo Qhesi said there is no doubt the proposed power tariff increase would worsen the already depressed economic situation for many household and business consumers.

He feels the government must intervene by shouldering the financing costs for LEC’s infrastructure refurbishment instead of being financed by consumers.

“Power is an essential human right like health services which the government duly subsidized. I feel like the government must do the same by stepping in to finance LEC’s system refurbishment to lighten the tariff burden for consumers.

“The government can do this by approaching multi-lateral finance corporations or development partners to obtain a loan. We cannot expect the consumers whose livelihood means have been paralysed by Covid-19 to finance LEC’s capital operations,” Mr Qhesi said.

LEWA is yet to determine whether to permit LEC the tariff adjustment they want or not. Last year LEWA initially deferred and ultimately never made any decision on the tariff review and directed LEC to recoup its massive outstanding debts from its consumers.

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