'Eskom's costs must be recalculated'

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PowerLines Reuters.

Cosatu-affiliated trade unions in the manufacturing sector have called for a recalculation of Eskom’s costs in the third multi-year price determination period and they want the National Energy Regulator of SA (Nersa) to lower the parastatal’s equity returns.

 

 

Yesterday the National Union of Metalworkers of SA (Numsa), the Food and Allied Workers Union and the SA Catering, Commercial and Allied Workers Union, along with environmental organisation Earthlife, instituted a programme of action against Eskom’s application.

 

 

They vowed to fight the annual 16 percent tariff increases sought by the utility, noting that such hikes would have a profound impact on retail and manufacturing.

 

 

Alternatives proposed by the unions included a recount of Eskom’s costs as they believed the utility had overstated the costs of generating power from renewable sources and coal.

 

 

They wanted Nersa to lower Eskom’s rate of return, which was projected to rise from 0.9 percent in 2013/4 to 7.8 percent in 2017/8, as its mandate was not to maximise profit, but to electrify the country.

 

 

The government could recapitalise Eskom as it did in 2008, they argued.

 

 

The unions said there was ample evidence that many commercial companies were already reeling from electricity price increases since 2008.

 

 

According to their records, electricity costs exceeded current gross rentals for some firms, threatening the survival of businesses operating from office blocks and shopping centres.

 

 

They said the increase in vacancies of commercial buildings such as malls and office blocks was directly linked to rising electricity costs.

 

 

Numsa said it had found in a snap electricity cost survey it conducted in November, that electricity costs in manufacturing firms made up 10.33 percent of their business costs in 2011, while the figure for mining companies was 5.37 percent and smelters 37.04 percent.

 

 

The unions said their biggest concern was the rate at which municipalities would raise their prices if Eskom succeeded in its application.

 

 

According to Nersa’s latest nationwide electricity supply statistics, municipalities supply electricity to 91 percent of manufacturing customers and 83 percent of commercial customers.

 

 

Azar Jammine, the director and chief economist at Econometrix, said the two-tier tariff system, where municipalities levied a surcharge on top of tariffs approved by Nersa, was the crunch that needed to be investigated.

 

 

“I would like to hear Cosatu question this issue. I would like to see them toyi-toyi about it. I’ve heard of instances where electricity consumers at Ekurhuleni pay three times more than Eskom customers,” Jammine said.

 

 

But if Nersa lowered Eskom’s return rate as proposed by the unions, he said it would be more difficult for the utility to finance its new capacity build because it would take longer to repay its debt.

 

 

“The question should be: how quickly do we want to fix the problem. We might pay [Eskom’s debt] slowly but end up paying a lot of money,” Jammine said.

 

 

Eskom requires R1.09 trillion in the next five years to run its existing operations and finance new capacity.

 

 

The company’s biggest coal-fired stations, Medupi and Kusile, are still under construction. Medupi is expected to deliver its first power to the grid later this year, with construction to be completed in 2015. Medupi alone is expected to cost R100 billion, but cost overruns mean that Eskom may have to secure additional funding.

 

 

But Jammine said that letting the government subsidise Eskom, as proposed by the unions, would mean that the government had to raise taxes to pay higher interest rates on its borrowings, while increasing the price of electricity could encourage people to decrease their consumption.

 

 

Shop stewards of the three unions will picket and demonstrate outside Nersa’s public hearings in Johannesburg this week.

 

 

The unions and Earthlife also plan a night vigil outside the energy regulator’s office on the eve of its decision on Eskom’s application, which is scheduled for February 28.



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