Soaring electricity prices anger consumers
MASERU – A spike in electricity prices late last year is sending customer bills in the country to historic highs and climbing faster than cash-strapped consumers can keep up with. Beginning December 1, 2022, customers began to bear the brunt of a new 7.85 percent tariff hike implemented by the Lesotho Electricity Company (LEC) for the year 2022/23 – though less than the initially proposed tariff increment of 12.32 percent. This was announced by the Lesotho Electricity and Water Authority (LEWA) chair of the Pricing and Tariffs Committee, Khotso Masheane, who said the increment would be for both energy and maximum demand charges for all customer categories.
Masheane revealed that LEC had applied for the revenue requirement of M1.478 billion but would, instead, be allowed revenue of M1.28 billion and a resultant tariff increase of 7.85 percent for both energy and maximum demand charges. He added that this would not only be adequate to cover the company’s prudently incurred costs but will also ensure affordability of electricity by the consumers. Charges for connection, wiring testing, re-testing, survey, re-survey, licensing for wiring, meter testing and house extension for the financial year 2022/23 would, however, remain unchanged.
One dissatisfied customer is ’Marorisang Makoae, a small business owner at Ha Pita, whose small enterprise depends mostly on electricity. With the little she makes, she has to deal with high electricity costs that keep on increasing. “I work as a dressmaker, therefore, I rely mostly on electricity to get my work done and with increasing costs, both electricity, rent, and water, it’s becoming even more difficult to realise profits,” she says. One factory worker, ’Malehlohonolo Mongala of Naleli, says electricity has become one of the most exorbitant needs, and that government has to extend a helping hand to underprivileged people. “Factory workers are already some of the least paid people in the country and with the cost of living increasing in the manner it is, it’s becoming even more unbearable to survive,” she continues, adding that M100 can no longer buy enough electricity to sustain her and her daughter for a month.
“I used to buy M100 electricity monthly, but now, I have to double the amount to sustain us for a month,” she said. This comes LEWA approved the electricity tariff increase of 12.32 percent across all customer categories during the planning period to achieve the Required Revenue for the smooth implementation of its operations. For the tariff increase, LEWA held consultative programmes on Lesotho Television and various local radio stations to seek the public opinion on the Lesotho Electricity Company’s (LEC) bid for a 12.32 percent increase in electricity tariffs. Tariff application 2022/23 analysis state that the cost of supply study that was undertaken by LEWA indicates that the LEC tariffs are not cost-reflective, meaning that the current tariffs are below the actual cost that the company is paying to transmit, distribute and supply the electricity in the country.
The study shows that the tariff adjustment applications rejected from the previous years could not sustain the company’s operations. It inhibits investment in the transmission, distribution, and supply of power. The requested tariff increase is what the company requires to maintain and develop its networks, serve customers, and survive. Tariffs that are set below the true cost of supply are the greatest hindrance to a viable, sustainable, and efficient power sector that is able to consistently meet customer demand and provide a reliable supply 5.3 weighted average cost of capital (WACC). It further states that the real WACC has been calculated to be 4.8 percent while the WACC (Pre-tax) has been valued at 8.1 percent.
LEC proposes a required revenue of M1.4 billion for the 2022/23 financial year to successfully implement its strategic objectives, relative to M1 070 105 376.04 allowed revenue for 2021/22 financial year. The company, therefore, proposes a 12.32 percent tariff increase across all customer categories during the plan period to achieve the required revenue for the smooth implementation of its operations. In October 2021, LEC increased electricity tariffs by 10.4 percent (10.3727 percent). This was per an agreement with LEWA. Likewise, in April last year, LEWA approved a 5.67 percent water tariff increase after Water and Sewage Company (WASCO) had requested a 15 percent tariff increase of volumetric and standing charges on December 16, 2021. The company had also requested a revenue requirement of M296.2 million for the 2022/23 financial year.
Speaking to this publication, Acting Public Relations Manager, Tšepang Ledia, said LEC depends on the Lesotho Highlands Water Project through the ’Muela Hydropower Plant, South Africa’s ESKOM, and Mozambique for electricity. “As LEC we do not generate electricity; we buy it from three places and if prices are high on the markets, we are obliged to also increase our prices,” he further says, adding that ’Muela can only supply about 50 percent of the required electricity and the rest comes from outside the country. He further mentioned that the electricity prices on the markets keep on increasing annually so LEC normally put forth its demands and challenges to the regulator (LEWA) which controls both water and electricity tariffs.
To be precise, he said so many things propel the increase of electricity, which includes tools, maintenance of vehicles, petrol, salaries, and upgrade of services, to mention a few. “We still rely on very old and worn-out infrastructure and machinery which needs replacement, however, LEC struggles to make enough money to ensure replacements,” Ledia points out, emphasizing that the company makes only makes a little profit from electricity sales. “We hardly make any profit from most of the services we offer. For instance, if we have to attend to faults in far places, we just charge a very little amount while we use expensive petrol,” he said, explaining that this is one of the contributing factors to electricity tariff increases.
Apart from that, Ledia indicates that places such as Semonkong spends around M2 million on diesel for it to operate. “Semonkong runs a loose generator, and for it to function we use M2 million to buy electricity. Not only that, it also falls under Maseru so, during faults for individual households, we still charge very little amounts regardless of the distance, as well as money and time used to get to the place,” he says. He explains that to fix the electricity meter they still charge a little amount of M20 and charge M100 for surveying. “The only time we make profit is through selling of electricity, and that is not even enough to assist in overcoming the challenges the LEC faces on a daily basis.”
LEC argues that the electricity hike is informed by an analysis covering all aspects of the economy, pointing to the cost of their daily use of machinery, vehicles and other equipment which need maintenance, hence more money to maintain them. The company says it is also faced with the challenge of vandalism which results in maintenance needs for equipment, equipment that is also purchased outside the country where prices vary a lot.