Link power hikes to inflation, Nersa told

By Time of article published Aug 2, 2012

Share this article:

Donwald Pressly

The National Assembly energy portfolio committee yesterday pressed the National Energy Regulator of SA (Nersa) to ensure that inflation-linked increases should apply in future for electricity produced by Eskom.

The committee, chaired by ANC MP Arthur Moloto, hosted Nersa’s electricity regulator Thembani Bukulu during discussions on the medium-term tariff application which Eskom must lodge within two weeks with the regulator. It is understood that Eskom will be seeking an increase of between 14.5 percent to nearly 20 percent over the next five years.

Bukulu said once the Eskom application was made there would be public hearings in January, with a decision on the increase at the end of February. This increase would apply from April next year.

David Ross, DA’s deputy energy spokesman, argued that it was time that the burden of the infrastructure costs of Eskom were not placed on the shoulders of electricity consumers. “In the last three years there have been increases of a total of 68 percent,” he said.

Noting that electricity was a critical input for small and medium-sized businesses – the most labour intensive sector – Ross said: “We must do everything we can to ensure that consumers do not end up paying for Eskom’s capital expenditure (programme).”

A suitable business model would be for consumers to pay for consumption and, possibly, for the interest on loans which fund the expansion. Eskom is spending R385 billion over the medium term on expansion, including R209bn on the Medupi and Kusile power stations.

Bukulu responded that the days of consumers footing the bill for infrastructure expansion were drawing to a close.

“We are over the hill… and going downwards,” he said.

He added that “the ultimate goal” was to have inflation-linked increases.

Independent Democrats MP Lance Greyling also asked who would be paying for cost overruns of the power plant projects associated with the boiler components being provided by Hitachi Power Africa. Bukulu said the jury was still out in terms of penalties for Hitachi.

“All of these things are going to be out in the open,” he said. The ANC has an indirect interest in Hitachi through its investment arm Chancellor House.

Ross argued that Eskom’s capital costs should be financed entirely by the issuance of Eskom bonds internationally. In addition, consumers should not have to pay today for capital projects which would be used by tomorrow’s consumers.

“Given today’s events, the DA expects that Nersa will unequivocally reject Eskom’s 14.5 percent request.

“South Africa’s electricity crisis will not be solved by placing a further financial burden on small business and ordinary consumers.”

He said making consumers pay for Eskom’s legacy of poor generation planning was unethical at best “and economically senseless at worst”. South Africans had been subjected to 24.8 percent, 25.3 percent and 16.09 percent increases over the last three years.

“Without electricity, our economy cannot grow and no serious dent can be made in unemployment. It is the single biggest service delivery crisis facing South Africa, but tariff hikes will only exacerbate the problem. Nersa must therefore do the right thing and stick to its word,” said Ross.

Bukulu hoped that South Africa would have a cost-reflective electricity price model in place by 2018. While Nersa had done its own calculations on what the increase should be, it needed industry inputs.

Share this article: