Malawi is currently facing an unprecedented economic crisis stemming from decades of economic mismanagement, theft and corruption. The situation has been exacerbated by Covid-19 which led to global lockdowns.

Ripple effects due to supply chain disruptions caused by Russia-Ukraine war is an icing on our miserable economic cake. The recent devaluation of the local currency has seen prices of commodities skyrocketing past the stars. Certain businesses are calling it quits and some international establishments are withdrawing their investments. At the receiving end of this is a miserable Malawian who must feel the pinch of the events. Malawians living abroad are not spared either. Apart from the economic turbulences in their countries of residence, they must also ensure to cushion families and loved ones back home.

Amid this doom and gloom, the local media has been awash with stories on the impending 99 percent electricity tariff increment. Most Malawians have taken to social media voicing their anger on this “absurdity” as they call it. Others have questioned why electricity tariffs should be increased when most part of the time, they are crawling in dark due to excessive power rationing (load shedding). Yet others have questioned the sanity and logic of splitting the electricity parastatal into three commonly known as unbundling when the country still has the same infinitesimal power generation capacity.

World over, the electric power industry advances nations’ economic growth, as it promotes business development and expansion. It provides solid employment opportunities to its citizens. It enhances the quality of life for its users and powers nations.

A robust electric power industry is expected to contribute to the progress and prosperity of any nation. The existing electricity grids are a product of rapid urbanisation and infrastructure development in various parts of the world in the past century.

One wonders, therefore, that a Malawian electric power industry can be described as robust. Is it enhancing Malawians’ quality of life? Is it efficiently and effectively contributing to the economic growth of this nation? Why are Malawians not seeing any fruits of unbundling?  What is unbundling and how did it come about? Is it necessary or not for Malawi? Should Malawi perhaps revert to its original bundled format of the power sector? Before I tackle any of these questions, allow me to bring you up to speed on bundled and unbundled structures of electricity power industry.

A bundled electric power industry is a traditional structure known as vertically integrated. In this case, an electric utility that generates electricity also transmits it over high voltage lines, distributes it over low voltage lines and retails it to the end users. The vertically integrated grid is, therefore, hierarchical in nature, with distinct subsystems of generation, transmission and distribution managed and operated in a top to bottom tier fashion, respectively. The system and power flow are fundamentally unidirectional, where the source has no real-time information about the service parameters of the termination points.

The bundled electric utility holds exclusive rights to serve all retail customers within its service territory. The structure of the bundled utility is based on the concept that a central source of power supplied by efficient, low-cost utility generation, transmission and distribution is a natural monopoly. The utility, therefore, has regulated monopoly on the production, evacuation and sale of electric power.

The regulations are imposed by the government or a government authority. These essentially represent a set of rules or framework that the government imposes to run the system smoothly with discipline and operate in a manner that minimises overall revenue requirements.

The vertically integrated monopoly utilities are used to cover their costs of doing business in rates charged to customers. Costs include operating  and invested capital where utilities cover them and considerable returns on their capital through rates imposed on customers. However, vertically integrated monopolies find it difficult to separate the cost on generation, transmission, and distribution. They also do not provide services as efficiently. A competition is guaranteed by establishing a restructured environment in which customers choose to buy from different suppliers and change suppliers as they wish to pay market-based rates.

The post Bundling vs unbundling electric power industry appeared first on The Nation Online.