Corporate analyst Chris Logan has lodged a request with Eskom under the Promotion of Access to Information Act (PAIA) in a bid to get details of the parastatal’s planned expenses in 2017.
Logan told Business Report yesterday that he believed Eskom’s expenses “are out of control”. He has formally lodged a PAIA request in a bid to determine precisely what are the components of Eskom’s budgeted costs of 71.39c per kilowatt-hour (kWh) in 2017.
In the appendix to its 2012 annual report, Eskom revealed that it was budgeting for an average electricity tariff of 97.51c a kilowatt-hour in 2017. This is almost double the current 50.27c a kilowatt-hour and will require annual increases of just more than 14 percent each year between now and 2017.
The 14 percent increase is significantly more than the expected inflation rate. If achieved, the five-year budget will give Eskom an increasing surplus over its operating costs from 9c a kilowatt-hour to 26.13c a kilowatt-hour in 2017.
The annual report also revealed that Eskom was budgeting for operating costs of 71.39c per kWh but gave no details of the components of that cost.
Logan said that it was important for the public to know what, if any, increases in primary energy costs Eskom was budgeting for. He noted that the outlook for the price of coal currently worked in Eskom’s favour but added that between 2008 and this year there seemed no evidence of Eskom benefiting from a decline in the world coal price. He queried whether this was due to unfavourable supply contracts entered into by Eskom.
In its 2012 annual report, Eskom management said one of its operational challenges during the year was that it “had to purchase more expensive coal due to poor performance of cost-plus mines”. Cost-plus mines are mines with which Eskom has contractual arrangements to pay all capital and operating costs required to mine the coal, plus an annuity return to the mining house.
In addition, Eskom had challenges relating to the quality of coal required at some of its power stations.
Logan said one of the major problems facing consumers was that the National Electricity Regulator of SA granted Eskom price hikes on a cost-plus basis.
“This system encourages Eskom to increase its costs, which is why it is so important that the public has more information about what sort of increases Eskom is forecasting for these costs.”
Logan also said it was important for Eskom to disclose more details about its contract with BHP Billiton. He believed that the supply of electricity to BHP Billiton’s two smelters in Richards Bay cost Eskom about R3 billion this year. “These smelter (contracts) are losing money and yet Eskom is unable to renegotiate a more appropriate arrangement,” Logan said.
BHP Billiton has appealed a high court ruling that obliged Eskom, in terms of a PAIA request lodged by Media24, to disclose details of its contract with Eskom.
Eskom categorises its operating costs as primary energy, employee benefits, depreciation and amortisation, and other operating costs. Its latest annual report reveals that between 2008 and this year other operating costs more than doubled while the actual volume of electricity sold was virtually unchanged. Primary energy costs, which are essentially coal, increased by 153 percent in the four years to 2012. Employee benefits increased by 76 percent, with the average cost per employee rising from R313 000 to R500 000.