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Eskom holding a gun to Nersa’s head in latest tariff application

Eskom chief financial officer, Calib Cassim, on Friday made an impassioned plea to the Nersa to objectively consider the utility’s application for a 20.5 percent tariff increase because any shortfalls in revenue generation still have to be covered by the government as a major shareholder and ultimately, consumers. Photographer: Nadine Hutton/Bloomberg

Eskom chief financial officer, Calib Cassim, on Friday made an impassioned plea to the Nersa to objectively consider the utility’s application for a 20.5 percent tariff increase because any shortfalls in revenue generation still have to be covered by the government as a major shareholder and ultimately, consumers. Photographer: Nadine Hutton/Bloomberg

Published Jan 24, 2022

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ESKOM’S chief financial officer, Calib Cassim, on Friday made an impassioned plea to the National Energy Regulator of South Africa (Nersa) to objectively consider the utility’s application for a 20.5 percent tariff increase because any shortfalls in revenue generation still have to be covered by the government as a major shareholder and ultimately, consumers.

On the last day of the public hearings, Cassim said previous Nersa decisions had been fraught with mistakes which were repeated in subsequent times, for example, in 2019 when the regulator corrected the employee benefit determination after the high court found that the approach used had been based on incorrect criteria.

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“If we cannot.as Eskom, recover the money through the tariff that is an electricity consumer base which is far bigger than the tax base, Eskom has only the shareholder to go back to because there will be a shortfall in the cash flow.

“We would have to go back to the government, effectively the National Treasury, and say Eskom is short of X billion rand, you need to foot that bill. So where is the shareholder going to get that money from? They will have to charge the taxpayer,” Cassim said.

The two organisations were in court as well late last year, after Nersa rejected Eskom’s MYPD5 application because it had been based on methodology from 2016.

Eskom approached the court leading to the current determination for 2022.

“We believe that in 2019 the Nersa decision on employee benefits had to be reversed by a court decision, mistakes have been made in the past and unfortunately in subsequent times, the mistakes have been repeated.

“Nersa’s decision must take previous corrections into account, (and) there should not be a repeat of these mistakes,” Cassim said.

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Eskom, which made major adjustments during the hearings to the assumptions underpinning its application, initially submitted in June last year, is seeking allowable revenue, including outstanding amounts already approved by the regulator of R293.4 billion for 2022/23.

Eskom’s application includes R6.5bn for the diesel-fuelled open-cycle gas turbines (OCGTs), which Eskom expects to operate at a load factor of 7 percent, rather than the 1 percent initially assumed.

“Eskom is not planning to load shed this year, if it means using OCGTs we will do that. It is far cheaper to ensure the country and economy have electricity than to avoid burning diesel,” Cassim said.

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He said load shedding carried a cost to the economy, which it estimated to be R9.53/kWh – which was three times that of producing OCGT electricity.

He argued against the utility being granted only an inflationary increase, saying the utility would not be able to cover its costs but only IPP-related increases which made up 5.85 percent of the 20.5 percent being sought, leaving no revenue to cover Eskom’s cost adjustments or the carbon tax.

Eskom’s application in the main comprises R68.3bn for depreciation; R66.7bn for operating expenses; R5.7bn for arrears debt; R4.6bn for international purchases; R7bn for the environmental levy; R2.7bn for the carbon tax and R14.4bn in previously approved regulatory clearing account-related revenue.

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