Consumers to EEC: Stop remitting dividends to govt, cushion consumers
MBABANE – Consumers are calling for the Eswatini Electricity Company (EEC) to stop remitting dividends to government and instead, use the money to cushion consumers against the ever-increasing electricity cost.
Consumers are of the view that the government should review the dividend policy, which forces the utility company to remit money to government in the event it has made profits.
According to the Kingdom of Eswatini Dividend Policy of 2015, dividends represent a return on the owners’equity investment in a firm. From its ownership rights in companies where it holds less than a 50 per cent shareholding, government is entitled to the same treatment as other similar shareholders, including for the distribution of dividends.
Expansion
Unless there are expansion or diversification proposals in hand, there is no need to keep the earnings reinvested in the public enterprise. The government should rather get the return on its investment in terms of a cash dividend. The policy further states that government’s preference for public enterprise profits to be distributed and paid as cash, rather than retained as equity, given this is the prime means by which the government can realise a return on its equity investment. “It is, therefore, expected that public enterprises will adopt a dividend distribution target over the standard benchmark, when appropriate, for example, when after-tax profit is not required for capital adequacy or when after-tax profit will not be used for investing in value-adding opportunities,” reads the policy in part.
Social and subvented public enterprises are expected to declare a rate of 5-15 per cent and entirely profit-making public enterprises should declare at least 50 per cent of their after-tax profit as dividends. Profit-making and developmental/essential are expected to declare a rate of 5-30 per cent of their after-tax profit as dividends, depending on the planned level of investment as supported by strategic plans and budgets.
The dividend policy classifies EEC as a public enterprise, which is profit-making and essential. It must serve all who have applied for service within an area.
It is obliged by a statute to meet certain service standards.
According to the EEC Integrated Annual Report, the company has amassed over E4 billion in profits in the last 13 years (2011 -2023) and declared and paid dividends amounting to over E271 million. Notably, there were some financial years in which the utility corporation declared and paid nil dividends. This was in 2013/14, 2014/15 and in 2016/17 financial years.
Dividends
According to the auditor general’s report for the year ended March 32, 2023, government received over E370.1 million from five of the State-owned Enterprises (SOEs) that are obligated to declare dividends and EEC was identified as one of the companies that consistently pays dividends alongside EswatiniBank,
Eswatini Railways, FINCORP and Central Bank.
In the last three financial years, government has received over E608.8 million in dividends.
Eswatini Consumer Association Chairperson Bongani ‘Bhanyaza’ Mdluli said it was high time that government reviewed the dividend policy, which would subsequently curb the increase of electricity cost. In Mdluli’s observation, the ever-increasing electricity tariffs by EEC are terrible and are compounding the already high cost of living. Mdluli went on to say that the electricity hike which came into effect on April 1, 2024, had further imperilled the already burdened emaSwati who are struggling to cope with the bullish and sticky inflation.
Mdluli noted that EEC and Eswatini Water Services Corporation (EWSC) were monopolists, who had no competition, yet their charges, according to him, were too high. Mdluli said the price hikes were not necessary considering the profits which were made by these entities.
He said it was unfair that it was the consumer that bore all the costs of these companies’ capital projects, adding that the profits should be re-invested to cover the intended projects, instead of paying dividends to government.
Affordable
Mdluli said that while government is trying all it can to make electricity installation affordable to even the poorest of the poor, the rate at which the tariff is escalating, is making it very unaffordable to emaSwati, and he urged parliamentarians to look into the issue of paying dividends to government by EEC.
Mdluli decried the fact that all the elec
tricity hikes were based on legislation which was passed by parliamentarians.
He said it was the same
Members of Parliament
(MPs) who could review the approved legislation.
“Our hopes lie solely with the MPs, who should engage the minister concerned and seek reviews.”
According to Mdluli, there is also EWSC, which had made a E250 million through the hikes of tariffs, which have been approved by the legislators.
He urged MPs to at least negotiate for a suspension of the tariff hikes until such a time when means to cushion the nation are made.
Eswatini Consumers Forum Chairperson Mandla Ntshakala, shared similar sentiments with Mdluli, stressing that EEC should be exempted from paying dividends to the government, so that it could be in a position to reinvest the money it makes, so that it can sometimes refrain from asking for tariff hikes at the detriment of the poor emaSwati. “Ideally, corporations like EEC and the EWSC are supposed to be making profit, but not remit it to government. Instead of declaring dividends, EEC and EWSC, should invest that money, so that it could be spent on cushioning consumers,” Ntshakala said.
He went on to say that he would engage the Eswatini Energy Regulatory Authority (ESERA) on the payment of dividends by EEC. He said it would be a wise move to advocate for the stopping of paying dividends by EEC.
Against this backdrop, Chairperson of
Comment
the Ministry of Natural Resources and Energy Portfolio Committee Madala Mhlanga, said dividends paid by EEC are lawful to assist government.
Mhlanga was questioned regarding the consumers’ view that EEC should stop paying dividends and reinvest the money to limit the ever-increasing tariffs.
The chairperson stated that it would be unfortunate if the government did not use the money profitably.
Mhlanga’s comment comes amid consumers’ concerns regarding the 2024/2025 electricity tariff hikes which were effected on April 1, 2024. The consumers want the hike to be suspended until a solution of how the nation would be cushioned is reached.
Among the consumers’ major concerns was that EEC should be scaling down on the increase of tariffs, because it was making huge profits at the disadvantage of struggling emaSwati.
The consumers also mentioned that it would be wise for the utility to cease paying dividends to government and reinvest that money into the business to control the increase of tariffs.
The customers also felt that government needed to subsidise the electricity as it was an essential service. They stated that the tariff hike was unreasonable and very disturbing in terms of lifestyle, because emaSwati is currently paying double the price to purchase the same number of electricity units.
Mhlanga stated that in the event there is recovery or under-recovery, ESERA was the one that was rightly positioned to compensate EEC.
He said another factor that needs to be looked into is the over-reliance of the country on neighbours for sourcing its electricity, especially South Africa, which raised its tariffs by 12 per cent. Mhlanga said he raised motions during the 11th Parliament whereby he was trying to persuade government to engage all stakeholders as a matter of urgency, to find alternative energy sources to mitigate the country’s plight.
In Mhlanga’s view, the concerns surrounding the hike in the 2024/2025 electricity hikes are justified.
He said Parliament intervened in the last term by negotiating the hike to be staggered as Eswatini Energy Regulatory Authority (ESERA) was proposing a 30 per cent increase.
Mhlanga said they could still engage the regulator on the matter and see what could be done, as it was clear to all that the economy was not doing well in the country. According to Mhlanga, he was yet to check on whether they could still intervene as legislators on this matter.
He said he has been receiving calls from concerned stakeholders, especially the business community, regarding the same matter, seeking intervention.
He stated that fortunately the Ministry of Natural Resources and Energy and EEC were already working on models of looking into other sources of clean energy.
On the other hand, when ESERA was asked for their comment as a regulator regarding the consumers’ view that EEC should stop paying dividends and reinvest the money to curtail the ever-increasing tariffs, they stated that any profits (or over-recoveries) made by EEC from the regulated power system activities were accordingly deducted and credited back to customers in the next tariff review.
Impact
ESERA’s Communication and Stakeholder Manager Teclar Maphosa said such had an impact on electricity prices as it lowered the tariffs as the review is assessed based on the utility’s request, less the over-recovery.
According to Maphosa, this was in line with the regulatory formula as outlined in the Tariff Methodology. “EEC is a Category A Public Enterprise, whose dividends are governed by the Dividend Policy,” Maphosa stated.
She further stated that the authority’s mandate was to exercise control over the electricity supply industry, which entailed, among other things, regulating tariffs, prices and charges, as well as the quality of services provided on regulated power system activities by licensees, including EEC.
The communication and stakeholder manager added that the power system activities were generation, transmission, distribution, supply, import and export of electricity.
She stated that the authority did not interfere in non-regulated activities and business decisions of its licensees for as long as they were not part of the regulated power system activities.
Maphosa said several factors contributed to electricity tariff increases, some of which the industry does not have control over.
These, she said, included but were not limited to, the cost of electricity import, local generation costs and foreign exchange rates for imported services and equipment.
Questioned on what could be the best-lasting solution to inhibit the over-increasing tariffs, she said while there may not be one best-lasting solution to inhibit the over-increasing tariffs, a number of these were also being explored and implemented at national level. These, she said, included the use of innovative technologies and increasing local generation through least-cost generation options and sources such as hydro and solar.
Generation
Maphosa said it was, however, worth noting that new local generation capacity may not necessarily make tariffs cheaper in the immediate term, instead, the price trajectory could be more predictable and the security of supply would be improved with reduced reliance on imports.
Furthermore, she stated that there were studies that were being carried out to ensure that the least cost plans were identified and implemented across the value chain from generation, and transmission to distribution of power.
Moreover, Maphosa added that several market reforms were being implemented, undergoing reforms to ensure effective competition and favourable pricing mechanisms.
These, she said, included, but were not limited to, the cost of electricity import, local generation costs, and foreign exchange rates for imported services and equipment.