it’s time for Eskom to carry its load

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What an enormous relief that the National Energy Regulator of SA (Nersa) did not succumb to Eskom’s outrageous demand for a 16 percent tariff hike each year between 2012 and 2017. Such an increase would certainly have led to an even greater unemployment problem than the country currently faces and would have undone all of the difficult balancing work that the Treasury puts into its annual Budget.

In its Budget Review 2013, the Treasury reminds us of what the select committee on finance had to say about administered prices.

It notes that price setters (such as Eskom) are generally focused on revenue generation and cost recovery.

“Less attention is paid to improving spending efficiency or ensuring adequate maintenance to reduce final infrastructure costs.” It talks of “highly ambitious” and “inappropriate” infrastructure plans.

It does seem that nobody outside of Eskom could understand the parastatal’s argument as to why it needed such a steep tariff hike. Giving it what it wanted would have freed Eskom from any need to impose discipline and efficiencies in its operation.

Analyst Chris Logan, who challenged the organisation on a number of occasions, described it as being totally “out of touch”. The demand for a 16 percent hike every year for five years is proof that it was.

In fact Eskom was so out of touch that it did not appear to have contemplated the possibility that consumers, faced with ever-increasing electricity costs, would eventually start to cut back.

According to Statistics SA, electricity consumption fell by 2.6 percent in 2012, with the rate of fall-off picking up steadily as the year progressed. In December, consumption was down 3.8 percent. Eskom had forecast a decline of just 1.4 percent for the 12 months to March 2013.

No doubt Eskom will run short of funds, until it works out the efficiency challenge, but at least now it will have to face the demands of funders.

The Budget did very little to boost consumer spending at a time when inflation and other costs further cut into disposable income. While retailers hang on to the idea of a greater disposable income, many consumers, especially in the middle- to lower-income brackets, will find this year even harder than last year.

Economists and analysts say the increase in the monthly child support grant by R10 to R290 in April and R300 in October, and the raise in the old-age grant to R1 260 from R1 200, will not improve consumer spending. Henry van Deventer, the head of business development at Acsis, says because the increases are by and large below inflation the impact on consumer spending will be non-existent.

He says that despite the increase in social grants and tax relief, many consumers will still suffer from emolument attachment orders that are probably overriding the lion’s share of consumers’ disposable income. Van Deventer says consumers’ income is used to repay debt. “The fact that credit lenders can now claim a part of consumers’ salaries as debt repayments or garnishee orders before people take their income home, it means consumers will have less money to spend.”

Still on the Budget, Arthur Kamp of Sanlam Investment Management says although a lot was made of the R7 billion tax concessions to individuals, indirect taxes are likely to generate R5.8bn. A net R1.2bn relief to the consumer is hardly exciting in the year where the prices of consumer goods have appreciated by approximately 6 percent.

“Although social grants increased, our view is that the Budget did very little to boost consumer spending,” he says. The amount of R827bn budgeted for infrastructure spending is marginally lower.

In his speech, however, the finance minister emphasised the importance of delivery. Whether this confirmation of the commitment on infrastructure spending is enough to trigger interest in construction shares remains to be seen.

Kagiso Media is likely to announce a new chief executive in April, according to outgoing chief executive Murphy Morobe, who steps down at the end of June.

Yesterday was the last time he presided over the presentation of results for the media group, which owns radio stations, an expanding website portfolio, digital media businesses and a television content provider. Morobe says a board meeting was held on Wednesday where the timeline to appoint a successor was confirmed.

A recruitment agency has been appointed to search internally and externally and “as broadly as possible” across race, age and gender lines.

Morobe was appointed in November 2006 following some years in student activism, trade unionism, the non-governmental sector and the president’s office as head of communications in 2004.

The former chairman of Ernst & Young was modest in response to a question on the highlights of his career in the driving seat at Kagiso Media, which has a market capitalisation of R3.2 billion.

Morobe says he was fortunate to have arrived at a company where his “predecessors had laid a good base”.

In seven years he has merely focused on costs by disposing of businesses such as the Rand Easter Show and Kagiso Exhibitions and Events, including loss-making businesses. He has diversified revenue streams to include digital media and focused on protecting the profitability of the firm’s broadcast assets.

“What is on the table is quite satisfying at the most. I’m heading a company which is very well regarded.”

Morobe has no plans to take up a chief executive role “in the short term” and says he “just needed to take time out”. He will dedicate his spare time to his passions: working with youth and wildlife.

Edited by Peter DeIonno. With contributions from Ann Crotty, Nompumelelo Magwaza and Asha Speckman. - The Star


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