Eskom’s price call sparks outrage

230615 Eskom CEO justifying the 12.61 percent tariff hike it is requesting from Nersa in Nasrec South of Johannesburg.photo by Simphiwe Mbokazi

230615 Eskom CEO justifying the 12.61 percent tariff hike it is requesting from Nersa in Nasrec South of Johannesburg.photo by Simphiwe Mbokazi

Published Jun 24, 2015

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Johannesburg - Eskom has put itself firmly on a collision course with the rest of South Africa as it stuck to its guns for a double digit electricity price hike amid a groundswell of rejection for its application to the National Energy Regulator of South Africa (Nersa).

Eskom yesterday reiterated its demand for the 12.61 percent tariff hike, charging that it needed 6.43 percent to fund its open gas cycle turbines to use diesel to avoid load shedding and 3.15 percent to subsidise its short-term power purchase programmes.

The utility said the remainder would be used to fund the energy levy. It estimated that the cost for diesel would be R32.5 billion, and power purchase programmes would hit R17.5bn in the current financial year.

Eskom chief executive Brian Molefe said it would be necessary for the energy regulator to grant it the increase it was seeking to ensure that it came out of the demand side management of electricity in the short term.

Supply

“I am convinced that if we pull through our capital expenditure programme and we minimise our demand side management, a portion of it may not be recovered immediately; that may not be good for us when we think we have already turned the corner,” Molefe said.

“We think that we have to focus on the supply to meet the requirements of the economy but also to provide for the growth in South Africa because growth will require more electricity or cheaper electricity. That is why it is critically important to increase our electricity supply from 43.5 gigawatts to about 50GW.”

But analysts and economists have joined in the chorus of a stern opposition to the application, pointing to the recent economic indicators as a reason.

Recent statistics have projected that the economy will grow at about 1.3 percent for the first quarter of the year, while unemployment has grown to almost 40 percent.

Economist Azar Jammine said if Nersa was to grant Eskom a 12.61 percent increase, it would open the Reserve Bank to hike interest rates at its next monetary policy committee in July.

“There is very little room that the Reserve Bank can do because the increases would put inflationary pressures and have a knock-on effect on fuel hikes, food costs and the rest of the economy,” Jammine said. “That will further stifle an already struggling economy.”

Cosatu has argued that Eskom was putting a further strain on an economy that was struggling to meet its demands.

It charged that the price hike would hurt the poor most.

The federation said the application lacked credibility because Eskom had been able to get additional increases before the end of the multi-year price determination period.

“We then argue that the government must inject equity into Eskom and ensure that the entity operates efficiently,” Cosatu said.

“We call on Eskom to do away completely with arrangements that allow energy guzzlers to pay less for energy they consume.”

Energy analyst Chris Yelland said municipalities would be worst hit by the tariff increase. If Nersa were to grant the increase by the end of this month, it would only take effect from August 2015 at the earliest, and municipalities would have to recover the costs only over the remaining eight months of Eskom’s 2015/16 financial year.

“Municipalities have formal, consultative, budgeting processes governed by the Municipal Finance Management Act.

“In light of the well-known statutory timelines for such processes, the additional price increase that may be determined by Nersa (which is still unknown at this stage) has obviously not been included in their budgets and tariffs for their financial year commencing July 1,” Yelland said.

“This means that any further price increase determined for 2015/16 cannot be passed by municipalities to their own electricity customers. This will have serious financial impacts for municipalities.”

Senseless

Chris Hart of Investment Solutions said: “You cannot afford to make a call for an electricity hike on an already overburdened consumer and a depressed economy and still hope to stimulate growth.

“You are essentially taking away much needed resources to reignite the economy, and giving them to an institution that is not even sure where it wants to go. It just does not make sense.”

Molefe urged South Africa to support the application.

He said Eskom was using diesel so that the economy continued to function and was not looking to make profit out of the tariff hike.

“Just to cover what we believe to be a programme that is as a result of capital expenditure. We think that this is a short-term programme that we will recover from but we need to be tight about.”

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