Vertically Integrated with Private Sector Participation
Generate, transmit, distribute and supply electricity
Import and export of electricity into and out of Eswatini
ESERA was established by an act of parliament, the Energy Regulatory Act, 2007, which gives it the statutory right to regulate the electric power industry in Eswatini. The establishment of ESERA by legislation enhances the credibility of the institution and is likely to have a positive impact on investor and consumer confidence.
Clarity of Roles and Objectives
ESERA is rated high for the clarity of its roles and objectives. ESERA’s regulatory functions and the obligations of the regulated utilities are clearly stated in the legislation (Act of Parliament). This thus eliminates overlaps in the roles and obligations of the entities.
ESERA maintains a high level of “arm’s-length” relationship with the government. Although the executive appoints the CEO and board for a term of two to four years (renewable once), the law makes provision for inclusion of institutional representation on the board (a representative of the Swazi nation appointed by the iNgwenyama) and staggering of terms of commissioners to ensure continuity and transfer of knowledge to new board members. The majority of ESERA permanent staff are recruited through competitive processes.
ESERA is rated low with respect to independence from stakeholders. This is because the primary law does not prohibit the CEO and commissioners from having any personal interest in the regulated utility or from holding positions in the utilities before and after their tenure of office at ESERA subject to material conflict of interest prohibitions. Thus, stakeholders can influence the decisions of the regulator and this can affect investor and consumer confidence.
ESERA has a high level of decision-making independence. Decisions of the board regarding tariffs, issuance and amendment of licenses are final and legally binding. The regulator is not required to seek executive approval on regulatory decisions and the executive arm of government cannot legally overturn regulatory decisions of the regulator. The regulator plays a facilitatory role in the resolution of disputes between companies on the one hand, and between companies and their customers on the other. ESERA undertakes public consultation to engage with the public and other relevant stakeholders before taking regulatory decisions.
ESERA maintains a medium level of financial independence. It is allowed to charge fees and levies, approved by the regulatory authority board to fund its activities. This is an opportunity for the authority to provide adequate remuneration to its staff and to fund its regulatory activities. However, the salary scale is based on Public Enterprise Unit (Government) Circulars and is approved by government and the regulatory authority board. The average salary level for the regulatory staff is lower than the salary level of utility company staff and it would thus be difficult to attract, train, maintain and retain skilled staff for its operations.
ESERA maintains a substantial level of accountability because although it reports and presents annual reports to the minister, there is a formal mechanism for regulated utilities to challenge the regulatory decisions of the authority. Furthermore, a specialized body other than the formal judicial system adjudicates over such matters. This ensures speedy resolution of disputes and boosts investor confidence.
ESERA is rated high in terms of transparency of decision making. ESERA publishes regulatory documents and decisions online, although this is not mandatory.
ESERA is rated substantial on the predictability of its regulatory decisions and actions. A documented tariff methodology, adopted in 2011, that sets out procedures and timetable for major tariff reviews is in place. It may only be changed by the regulator, in consultation with regulated firms and stakeholders. There is a predictable mechanism used by the regulator to disallow costs considered unreasonably incurred by a regulated entity and the procedure and schedule for obtaining licences is published.The downside, which could affect investor confidence, is that key regulatory documents like licenses, contracts and authorizations, may be modified by regulatory decision without recourse to stakeholders.
ESERA maintains a high rating for ensuring that there is a clear mechanism for stakeholder participation in the regulatory decision-making process. Stakeholder consultation is mandatory and the regulator involves key stakeholders in its decision-making process, through public hearings, ad-hoc meetings and submission of written comments. Comments received during the consultation exercise are published on the regulator’s website. ESERA, however, needs to provide feedback on comments received from stakeholders.
Open Access to Information
ESERA is rated substantial in terms of granting stakeholders open access to information. The institution has a website where the public and stakeholders can access key legal and regulatory documents and underlying justifications to major regulatory decisions.
Economic Regulation – Tariff Setting
ESERA has a medium level rating in respect of economic regulation. Although the regulator has developed a well-documented tariff-setting methodology, which includes a formula for setting end-user tariffs, the tariff methodology does not include an automatic tariff adjustment formula or a schedule for major tariff reviews. End-user tariff-setting regulations have a mechanism to avoid passing on inefficient costs to consumers and the utility requires approval from the regulator before making major investments. The regulator requires regulated companies to submit financial information according to regulatory accounting standards. There are no regulatory mechanisms to compensate generators for the provision of firm capacity or ancillary services and utilities are not compensated for the costs of stranded assets. A Cost of Service study has been conducted on the utility. Lifeline block and cross subsidies are used to make tariffs affordable to support low-income consumers, the poor and vulnerable. Government does not pay direct subsidies but Industrial, commercial and a part of residential consumers provide the subsidy which benefits residential consumers.
Technical Regulation – Quality of Service
ESERA is rated substantial in terms of development of quality-of-service regulations and codes, which provide for monitoring the performance of the regulated utility on technical performance and quality of service performance. The regulatory authority has developed a national transmission grid code, and a distribution grid code, both effective since 2015. They provide procedures for access and operation of the inter-connected power system. Indicators such as System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) and time bound performance parameters are regulatory requirements stated in the quality-of-service regulations. They include such parameters as the time for a utility company to respond to a customer request for new connection; the time for an actual connection to be made; and the response time to customer complaints. No fines are imposed on the utility if the utility records SAIDI and SAIFI results above the regulatory ceiling. Although it analyses the quality-of-service information and discusses the results of the analysis with the regulated utility, the regulator does not publish performance assessment reports.
There is a medium level of development of the licensing framework in Eswatini. The existing licensing framework developed by ESERA covers only grid-connected systems and provides procedures and guidelines for application, approval process, schedule of license fees. There is no simplified licensing framework for off-grid and small systems.
There is inadequate human capacity to deal with the key regulatory functions of the ESERA including tariff setting and utility performance analysis, which will compromise the regulator’s ability to undertake its duties
Renewable Energy Development
The level of renewable energy (RE) development in Eswatini is high. The policy and legal frameworks for renewable energy have been developed and published to facilitate and guide the commercial development of the renewable energy resource. An assessment of the RE potential of Eswatini has been conducted and the Energy Master Plan 2034 and Short Term Generation Plan 2018-2023 specifically focus on the increasing renewable energy generation capacity in the country. ESERA is in charge of renewable energy regulation while the Department of Energy, Ministry of Natural Resources & Energy is responsible for the formulation, development and implementation of the renewable energy strategy. Model power purchase agreements have been developed for renewable energy, and tariffs are determined through competitive bidding. ESERA is currently undertaking a competitive IPP procurement program for 40MW solar PV (phase 1) and 40MW biomass (phase 2) generation. Access to the grid and priority dispatch is given to electricity generated from renewable energy sources based on least cost or procured through competitive bidding. The national transmission grid code specifies renewable energy connection procedures, and the legal framework allows a private operator the right to produce electricity from renewable energy sources on behalf of a consumer or a group of consumers connected to the national grid.
Mini-Grid and Off-Grid Systems
The national electrification plan , which is an integrated plan, sets out a least-cost electrification pathway including grid, mini-grid and off-grid systems and clearly demarcates areas for each system. However, the level of regulatory development of the framework for mini-grid and stand-alone systems is rated low. This is because there are no regulatory instruments related to this sector. There are no regulations that clarify the arrangements for transfer of asset ownership and/or ongoing operation and maintenance when the national grid envelopes a privately owned mini-grid system. Technical/quality standards for mini-grids have not been developed and there are no connection codes specifying technical standards for connecting mini-grids to the national grid. No licensing concessions are available for small mini-grids.
Energy Efficiency Development
The level of the framework for energy efficiency development in Eswatini is low. There is an Energy Efficiency policy adopted in 2019 with specific energy efficiency targets at the national level set for the power sector. The National Energy Efficiency Strategy and Action Plan, adopted in 2020, targets a reduction in annual electricity consumption of 400,000MWh by 2034. Targets for network losses have been revised from 13.5% to 12.86% effective April 2021. ESERA is not in charge of energy efficiency regulation, rather the Department of Energy is responsible for the development of energy efficiency strategy and implementation. This could lead to gaps and conflicts in the electricity regulatory framework. Minimum energy performance standards (MEPS) are in place in Eswatini for lighting equipment only.
Financial Performance and Competitiveness
From the perspective of the utility, there is a medium level of regulatory outcomes on financial performance and competitiveness of the utility and the sector. A cost-of-service study has been carried out on the utility’s operations within the last five years by the regulator, and the findings and recommendations are being implemented. A loss rate of 12.5% is factored in the tariffs but the actual loss level is 13.25%. The current level of the average end-user tariff is not in accordance with the utility’s costs of operation and a transparent procedure formulated by the regulator for reviewing the end-user tariff levels has not always been followed. There is a transitional path agreed between the utility and the regulator in 2021, to attain cost reflective tariff by 2029. There is no predictable mechanism used by the regulator to disallow cost considered unreasonable incurred by the utility as a result of non-transparent procurement practices used by the utility, thus consumers are not protected from paying unreasonable costs. There is no regulatory mechanism to deal with electricity theft but the utility has put in a mechanism to address. Price adjustment clauses in approved Power Purchase Agreements (PPAs) by the regulator are recognized by the regulator for tariff adjustments although the tariffs have not been approved prior to signature of the PPAs.
Quality of Service Delivery (Commercial and Technical)
The level of regulatory outcome in the area of quality-of-service delivery is low. There is a Quality of Service Code to guide the operations of the utility, but there is no regulatory requirement for the utility to undertake periodic technical audits or a valuation of its assets to establish the true state of its facilities. The utility voluntarily undertakes the valuation of its assets. There is no regulatory requirement for the utility to publish its SAIDI and SAIFI and there are no regulatory ceilings, set by the regulator. The consumer is likely to be short-changed on the quality of service, and this will undermine consumer confidence. Time-based customer service requirements such as time from request for a new connection and actual connection are some of the customer service requirements from the utility.
Facilitating Electricity Access
ESERA is rated substantial in facilitating electricity access although there are no specific regulatory mechanisms in place aimed at enhancing access to electricity in Eswatini. There is a ceiling set by legislative or regulatory instrument on the number of days to provide electricity connection to a customer after making payments, which is contained in the Customer Service Charter of the utility. The regulator considers the need for the utility company to recover investments or funds that are provided by government, communities, civil society organisations (CSOs) and the utility in rural electrification projects. However, the utility does not refund monies invested by these communities or institutions over time. The regulator does not add the investments made by the utility to the rate base for recovery through the tariffs, but a rural electrification access levy is included in the energy charge in the tariffs.
The regulatory law should be amended, or secondary legislations developed to make provision for the following:
- Parliamentary approval of the level of the annual regulatory fees and levies charged by the regulator.
- An adequate cooling off period after the term of office of the CEO and commissioners, before accepting employment in a regulated entity
- Average level of salaries of regulator staff to be at least equal to those of utilities
- Regulator to report directly to parliament
The regulator should conduct a consumer satisfaction survey at least once every two years to track the level of quality-of-service delivery by the utility and to identify areas for improvement.
ESERA should develop a comprehensive licensing framework to cover both grid and off-grid systems, with separate simplified and light-handed license procedure for off-grid and small sized systems.
The regulator should develop a comprehensive capacity building program to ensure adequate capacity of staff in the areas of tariff setting and utility performance analysis.
Establish relevant regulations to support and guide coherent approach to mini and off grid development, including access rules, compensation frameworks, technical standards, etc.
Urgent steps should be taken to implement the findings of the cost of service study and cost recovery plan.
The regulator should set and enforce a ceiling and thresholds for key quality of service indicators such as SAIDI and SAIFI, with incentives and penalties to instigate compliance by the utilities.