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The Lesotho Chamber of Commerce and Industry (LCCI) has questioned the logic of the Lesotho Electricity Company’s (LEC) decision to renew its “rip-off deal” to import electricity from Mozambique, saying this will cost Lesotho more than it would pay for similar imports from neighbouring South Africa as reported by the Lesotho Times.
The LCCI also said it was illogical for LEC to propose a 23. 6 percent tariff hike when South Africa’s Eskom which supplies the bulk of Lesotho’s power imports is only going to effect a 5.23 percent tariff increase.
The LCCI raised these and other concerns in a letter that the chairperson of LCCI Energy Sector, Ntsie Maphathe, recently wrote to the Lesotho Electricity and Water Authority (LEWA) manager for the Economic Regulation Department, Thuso Ntlama.
The letter was written as part of the LCCI’s efforts to have LEWA intervene in what the former views as LEC’s insistence with the unfavourable power purchase deal despite being warned against it.
However, the LCCI concerns were dismissed by LEC board chairperson, Refiloe Matekane, who said the former was misinformed as the EDM deal was significantly cheaper than what Eskom was offering.
LEC buys 72 Megawatts of electricity from the Lesotho Highlands Development Authority’s ‘Muela Hydro-power Station but it meets its daily 156 MW requirements by importing the rest from South Africa’s Eskom and Electricidade de Mocambique (EDM).
In a recent interview with the Lesotho Times, LEC managing director, Thabo Nkhahle, said they import up to 30 MW from EDM, meaning that the remaining 54 MW are imported from Eskom.
Back in October 2017, the LEC announced that it would cease electricity imports from Mozambique in December 2017 and look elsewhere as part of measures to ensure electricity is more affordable to clients.
At the time, LEC said the move was necessitated by the high costs of power which compelled them to pass on the costs to the end-users through regular tariff adjustments.
However, in February this year LEC made an about-turn, saying it would continue importing power from Mozambique after EDM agreed to reduce its tariffs from M1.42 per unit to M0.89 per unit. LEC says this is considerably lower than the M0.94 per unit per unit currently charged by Eskom.
It further says that the Mozambican imports are needed now more than ever since Eskom will be increasing their tariffs by 5.23 percent with effect from 1 April this year.
However, the LCCI argues that LEC has not been forthcoming about the true costs of the EDM deal which it says are substantially higher than those of Eskom even after the latter’s anticipated 1 April tariff increase.
It argued that despite the apparent reduction in the EDM tariffs, there were exorbitant hidden costs which LEC had to come clean about.
The LCCI argues that there are three such hidden costs which would ultimately make the Mozambique purchases far more expensive than those from Eskom and as such, unjustifiable.
One such hidden cost, according to the LCCI, is the ‘wheeling charge’ which the LEC is obligated to pay to Eskom for use of its grid to transmit the power imported from Mozambique to Lesotho. This cost arises from the fact that Lesotho and Mozambique are not neighbours and therefore any power transmission must be made through South Africa and specifically on the Eskom grid.
In addition to the wheeling charge, the LCCI says LEC also pays a “dumped energy” and “incremental” costs to Eskom for use of its grid to receive electricity from Mozambique. It says all three costs are charged in United States dollars as per the agreement of Southern African Development Community (SADC) countries that make up the Southern African Power Pool (SAPP).
SAPP is a grouping of SADC national electricity companies have created a common power grid among their countries and a common market for electricity in the SADC region. SAPP was founded in 1995.
“It is important to note that the three costs should be added to the energy cost payable to EDM to determine the monthly cost which are certainly much more
“The LCCI is surprised to realise that LEC has renewed the supply contract with EDM of Mozambique despite warning against the rip-off deal which subsequently subjects electricity customers to unfairly high tariff charges. Hence we seek your urgent intervention,” Mr Maphathe wrote to LEWA’s Mr Ntlama on behalf of LCCI.
“The LCCI opinion is that if LEC considers the implementation of these recommendations (which include the cancellation of the EDM deal) some substantial cost savings would be realised and should be directed towards strengthening LEC system maintenance in order to arrest the prevailing unplanned outages which are detrimental to business and socio-economic growth.”
“It is only to the advantage of LEC and its customers to work around an economic power purchase deal with Eskom while it has excess capacity.”
However, LEC board chairperson, Refiloe Matekane, told this publication that the LCCI’s concerns were either based on “misinformation or misunderstanding of how the deal with EDM was sealed”.
He said it is shocking for LCCI to refer to the EDM power deal as “rip-off” when it was cheaper than what Eskom offered Lesotho.
“The Eskom deal is not in any way cheaper than what we get from EDM despite the dumped energy or incremental costs,” Mr Matekane said.
He produced invoices which appeared to show that in February 2017, the LEC paid M5, 249, 223 for 3, 720, 000 units of power and a year later in February 2018, the LEC paid M2, 377, 230 for the same units. This appeared to show that EDM imports had become cheaper after the re-negotiated deal.
“All the acquired costs by LEC, be the dumped energy cost, the wheeling costs and the incremental cost are all included in the billing,” Mr Matekane said.
Last month, LEC managing director, Thabo Nkhahle, told this publication that the new deal with EDM would help them save on electricity imports and even enable them to pass the savings to consumers through a tariff increase that would be revised downwards from the 23, 6 percent they had already asked for.
Mr Nkhahle also defended his organisation against accusations that it wanted to fleece consumers through exorbitant tariffs, saying they had resisted implementing a 50 percent tariff increase recommended by LEWA and the African Development Bank in order to cushion customers.
“We were actually blamed for charging less,” Mr Nkhahle said.
Mr Matekane also said it was unfair to attack LEC for asking LEWA for a 23.6 percent tariff increase and compare it with Eskom increment “because the requested 23.6 percent includes all the operational activities of the LEC not transmission of electricity alone”.