Johannesburg - Power utility Eskom yesterday failed to get its application for a R22.8 billion third multi-year price determination (MYPD3) tariff increase as the National Energy Regulator of SA (Nersa) only approved the recovery of R11.2bn.
The regulator slashed the application to 9.4 percent for the 2016/17 financial year against Eskom’s wish for what it claimed was money partly used to avoid load shedding.
Eskom approached Nersa with the application in November to recover the money for various costs incurred in the 2013/14 financial year – the biggest of these was R11.7bn, which it wanted because of a variance in revenue in 2013/14.
Eskom also wanted to recover R8bn for the use of the open cycle gas turbines (OCGTs). Nersa only allowed the power utility to recover R1.3bn. It only approved 6.2 percent of the application and said Eskom could not disaggregate the special pricing agreements and international sales when allocating the approved MYPD3 revenues to different customers.
“Eskom used the OCGTs due to the unavailability of the plant,” the Nersa regulator member responsible for electricity, Thembani Bukula, said. “That is why we used the coal price instead of the actual cost of operating the OCGTs.”
But the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said the increase was a setback for the sector.
Seifsa chief economist Henk Langenhoven said the decision would have an effect on the economy and would contribute to more job losses.
“The metals and engineering sector exports 60 percent of its production and international competitiveness is key to its survival. This electricity cost increase will erode it even further,” Langenhoven said.
“Production in the metals and engineering sector has not recovered since the 2008/9 financial crisis and has deteriorated further since June 2015.”
The country’s biggest consumers of electricity described the Nersa decision as practical given the current economic realities. The Intensive Energy Users’ Group, whose members collectively account for 44 percent of electricity consumed in South Africa, said the decision would force Eskom to make internal savings.
“Nersa’s decision comes as a huge relief for our members,” spokesman Shaun Nel said.
The Chamber of Mines described the 9.4 percent electricity hike as “more palatable” than the 16 percent that Eskom had asked for. The chamber’s chief executive Roger Baxter said the increase was, however, still “significantly” higher than inflation.
“However, for the struggling mining sector, this increase will have a major impact on increasing the industry cost base,” Baxter said, adding that electricity had been the fastest growing component of the mining sector’s cost base as it had increased by more than 300 percent in the past seven years.
“While the mining industry supports Eskom’s intent to resolve South Africa’s long-term energy crisis, we fully support the statements by Minister Pravin Gordhan in the Budget Review for 2016, indicating that further efficiency improvements are necessary at Eskom to ensure moderation in future tariff increases, including the possibility of co-funding through public-private partnerships.”
Eskom chief executive Brian Molefe said the decision would put the utility under financial strain and said this would have far reaching consequences for the economy.
Sustainability
Molefe said Eskom “noted with concern” Nersa’s decision on OCGTs and argued that it did not address the question of Eskom’s continued financial sustainability. He said the decision would impact on the utility’s overall operations.
“We have reduced diesel usage in recent months and have made great strides in our maintenance plan, however, we continue to run a constrained grid. OCGTs are part of our emergency portfolio and have been used in the past to avoid or limit load shedding with the understanding that we can recover these costs within the regulatory clearing account process. The recovery of diesel costs is now seriously in question with Nersa’s current decision,” Molefe said.
Public Enterprises Minister Lynne Brown said she would study the Reasons for Decision document and discuss the implications of this lower-than-expected increase, including the nature and extent of the applications with Eskom.
“Eskom needs additional revenue to complete the build programme,” Brown said. “I have requested Eskom to provide me with a report on the impact this increase will have on their programmes.”
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