Self-proclaimed parastatal Mr Fix It, Brian Molefe, hit his first real pothole yesterday when the National Energy Regulator of South Africa (Nersa) rejected his application for an extra R52.8 billion Eskom cash injection.
The power utility had sought an additional 12.61 percentage point tariff hike.
The rejection of the proposed price hike is positive for inflation and the outlook for interest rates and provides consumers and business with somewhat of a reprieve amid tough economic conditions, including low growth and high unemployment.
Void assessment
Molefe led Eskom’s presentation to Nersa for a price hike that would have seen the utility getting a 25.3 percent tariff hike this year. He justified the extra funding on the basis that Eskom needed to buy electricity and diesel to help ease the need for scheduled blackouts.
However, Nersa’s head of electricity sub-committee Thembani Bukula shot down Molefe’s argument, charging that the assessment was void.
Bukula told a media briefing at the regulator’s Pretoria headquarters that if Eskom had done its maintenance properly there would be no need for power cuts.
Nersa also dismissed claims that if the increase was not granted it could open the country to more electricity power cuts and push the economy on a downward spiral.
The news caused yields on the utility’s $1.75bn of bonds due in January 2021 to climb 17 basis points, the most since March 13.
Nersa’s chairman Jacob Modise described Eskom’s application for the reopening of the multi-year price determination programme as lacking cognisance of the economic realities.
“The application did not provide the mechanisms of how the proposed increase, if granted, can be implemented in the current financial year in a manner that is consist with the requirements of the Municipal Finance Management Act,” said Modise.
Door not shut
“Furthermore, any mid-year (additional) price increase for the 2015/16 financial year cannot be considered as Section 28(6) of the Municipal Finance Management Act prescribes that a municipal tax or tariffs may not be increased during a financial year, ie after July 1, 2015,” he added.
However, the regulator insisted that it had not shut the door on Eskom saying the utility could return with a better prepared application. Nersa’s decision comes in the wake of a groundswell of opposition to Eskom’s application to the energy regulator last month, in which the utility asked for a R32.9bn cost recovery for its open cycle gas turbines and R19.9bn for the short-term power purchase programme.
Yesterday Eskom said it had noted the regulator’s decision not to grant its application for electricity price hikes. “We will study the details of the determination and consult with the shareholder (government) before we can comment further on its impact,” said acting Eskom chief executive Thava Govender. – Additional reporting by Bloomberg