Companies / 8 February 2016, 07:30am / Siseko Njobeni
Johannesburg - Power utility Eskom will know in a matter of weeks whether its attempt to recover R22.8 billion for cost recovery and revenue adjustments is successful.
The National Energy Regulator of South Africa’s (Nersa) hearings on Eskom’s regulatory clearing account (RCA) ended on Friday and the regulator will make a decision on February 25.
The RCA application is a cost recovery mechanism that seeks to reconcile the tariffs Nersa awarded Eskom on the basis of a range of forecasts and what materialised, as reflected in the utility’s financial statements.
The power utility’s application is based on the 2013/14 financial statements.
During the public hearings last week, Eskom was pinned for squeezing consumers for more money in an already weak economy.
The mining sector, which is a major consumer of power, told the hearings that the application was not affordable in the current economic climate.
In addition, high electricity tariffs are an ever present risk to the inflation outlook. In its justification, Eskom pointed to increases in costs “due to a changing environment and assumptions” after Nersa’s last tariff determination. But the power utility has found little sympathy from its customers.
“Eskom’s financial sustainability is inextricably linked to the financial well-being of its customers. Eskom’s customer base will be compromised if their viability is undermined by electricity which is not reliable, predictable and competitive,” Business Unity South Africa chairman of the standing committee on economic and trade policy Martin Kingston said on Friday.
Kingston said higher electricity prices rendered businesses uncompetitive.
In fact, he said electricity had regressed to 2007/08 levels, an indication of fewer business consumers.
“Consequently, consumers will pay higher unit costs for electricity, leading to pressures on business and the prospect of further reduction in demand.
“This constitutes a vicious cycle that needs to be urgently arrested. Weak demand is likely to persist until 2018/2019, resulting in similar variances in revenue and, therefore, the potential for ever increasing tariffs with this methodology,” Kingston said.
Lower electricity sales are among the main reasons for Eskom’s application. Other main drivers of the applications are costs associated with the running of the open-cycle gas turbines (OCGT).
Eskom has told Nersa it used the OCGT plants extensively in order to avoid load shedding.
Major companies and business organisations begged Nersa to reject the application, citing the negative effect a further price hike will have on jobs, labour costs, reduced capital investment and productivity.
Sibanye Gold senior vice-president for technical services, Peter Turner, said the company’s margins were already under pressure from rising costs and declining production. Sibanye consumes 1.6 percent (481 megawatts) of Eskom’s electricity output.
Turner said Sibanye Gold’s power costs last year were R3.1 billion. Over the past 10 years, electricity as a percentage of Sibanye’s cost base had increased.
“Ensuring the sustainability of, and unlocking value from South African gold resources, will require stable and reliable supply and affordable input costs,” Turner said.
The Aluminium Federation of SA executive director Mark Krieg said electricity tariffs had increased by 250 percent since 2006/07.
The price escalation of above inflation and load shedding have negatively affected the aluminium industry.
“This affects electricity price predictability and certainty. This is required to encourage investment in a period of low economic growth. The aluminium industry is energy intensive. It relies on a reliable affordable electricity supply,” Krieg said.