Power price hikes may slow

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INSLA

Eskom chief executive Brian Dames says the utility had to mix the higher cost of independent power purchases with the lower cost base of Eskom to meet the countrys demands. Photo: Candice Mostert.

Consumers could see a further moderation in electricity tariff increases next year after Public Enterprises Minister Malusi Gigaba hinted yesterday that the government might again forfeit a multibillion-rand dividend. A similar waiver led to an almost 10 percentage point reduction in price hikes this year.

The state-owned utility reduced the agreed 25 percent increase in the multi-year price determination period for the current financial year to 16.09 percent, after the department gave up a dividend of R8 billion at the start of the year. Gigaba said the government would continue to waive its rights to dividends.

He said as a shareholder, the department wanted to strengthen Eskom’s balance sheet amid its ongoing multibillion-rand build programme.

Eskom has to pay R23.5bn a year for the next six years to service its debt. The utility’s gross debt stands at R182.5bn.

Eskom’s finance director, Paul O’Flaherty, said the debt was expected to increase to R350bn in the next three years. And the company would have to pay off R120bn interest first before paying off the debt. Half of Eskom’s debt is over 10 years old.

Eskom’s next multi-year price determination period (MYPD3) begins in April next year and the company will submit its application in July.

With only 0.2 percent growth in electricity sales, Eskom managed to boost profit by 60 percent to R13.2bn in the year to March from R8.4bn a year earlier, thanks to double-digit price increases for two consecutive years.

The power utility said at the presentation of its year-end results that increased tariffs, which jumped by 25.2 percent in the year under review, were the driver of the R114.7bn revenue it generated in the 2011/12 financial year.

The power utility sold electricity at 50.3c per kilowatt-hour (kWh), a 10c increase from 40.3c in 2011.

During the year under review, it cost Eskom 41.3c per kWh to produce electricity that was sold for 50.3c.

The biggest cost contributor was the increase in the price of coal, which rose 17.7 percent, making up 20.6c of each kilowatt-hour production cost.

Electricity generated by the independent power producers cost Eskom 77c per kWh to buy, only to be sold for 50.3c.

“Tariffs are not cost reflective,” Eskom chief executive Brian Dames said. “We had to mix the 77c with the lower cost base of Eskom because it’s a choice we have to make as a country to bring extra capacity from other sources if we want to meet demand.”

He said these were all the issues that needed to be debated leading to MYPD3.

Gigaba said a variety of issues would continue to affect electricity tariffs, including the rise in primary energy costs.

“We hope to eventually arrive at cost reflective tariffs but it is premature to say at the moment whether Eskom would be applying for further tariff increases. We are looking at different models that we have to consider,” he said.


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