With a need to raise R1.09 trillion in revenue in the next five years, power utility Eskom has calculated that it would need 16 percent annual tariff increases, a figure that was met with great opposition during public hearings to its application this week.
As some economists believe that this opposition can result in smaller increases than what the company has applied for, the question that remains is where else can Eskom tighten its belt to make room for funding its existing operations.
Eskom chief executive Brian Dames said the company had looked hard at its costs and had committed to saving R30 billion over the third Multi-Year Price Determination (MYPD3) period.
Given that the savings committed to still translated in to a need to raise tariffs by 16 percent annually, the importance of collecting the company’s books could not be ignored.
For the first time in years, Eskom has prioritised debt collection as it set itself a target last year to keep arrear debt at less than 0.6 percent of its annual revenue.
In 2012, the utility company achieved this debt collection target, recording 0.53 percent annual arrear debt.
Electricity debtors were R14.6bn at the end of March 2012 and the residential debt in Soweto continues to grow.
The company said this was over R3.3bn as payment levels in Soweto were under 30 percent, compared to over 80 percent in other township areas.
Most Soweto households are supplied directly by Eskom.
“The issue of Soweto is a longstanding problem but, together with the government, we are engaging with the community and the community leaders to see (how) we can address that problem,” Eskom spokeswoman Hilary Joffe said.
Eskom said municipal debt had improved significantly due to interventions by the provincial governments. Last year, the Department of Public Enterprises told Parliament that municipalities and government departments owed Eskom over R500 million and were in arrears by 30 days.
Eskom said municipalities were in the process of concluding payment arrangements with the company and the utility no longer provided for arrear municipal debtors.
Local users are the main debtors of Eskom with small power users in arrears by 42.9 days. Large power users were in arrears by 21.8 days last year, while industrial and international customers were 14.4 days behind with their payments.
Eskom has gone to great lengths in collecting outstanding debt from international customers after the much publicised debt owed by Zimbabwe’s power utility in the early 2000s.
The power company had managed to recover the entire R74m by 2008.
Now Joffe said although Eskom still sold electricity to Zimbabwe from time to time, it did so on an upfront payment basis.
“We are a member of the Southern African Power Pool (Sapp) and we have an agreement that that they can ask for assistance when there is a need. But we don’t supply power to Zimbabwe or any of the other members if we have a shortage,” Joffe said.
When Sapp was formed in the late 1990s, Eskom had significant surplus energy available and a number of countries came to depend on Eskom rather than building their own generation capacity.
This resulted in Eskom’s cross-border sales exceeding cross-border purchases. However, Eskom’s electricity sales to neighbouring countries now constitute only about 1.4 percent of the total electricity available to South Africa.
The majority of this power is sold to Cahora Bassa Hydroelectric (HCB) in central Mozambique with small volumes from Lesotho.
Eskom also sells electricity to the state power utilities in Botswana, Namibia, Swaziland and Lesotho.
Eskom’s agreement with Zimbabwe and Zambia is that it would sell electricity only when surplus capacity exists and during emergency situations.
“We have different contracts with different countries. Some of them we supply on (a) regular basis. We sell the electricity at the same price as other large customers plus premiums. So we don’t sell power cheap to our neighbours,” Joffe said.
But Eskom is not only a net exporter of electricity, it now imports 1 300 megawatts of electricity from Mozambique every day.
Joffe said it was crucial for the company to trade power with neighbouring countries. They would actually be pleased to see much more development of power infrastructure in the SADC region, because that would allow them to exploit the good resources, such as natural gas and hydro, in the neighbouring countries.