Brian Dames, Chief Executive of Eskom. Picture: Candice Mostert
Brian Dames, Chief Executive of Eskom. Picture: Candice Mostert

Eskom seeks 16% increase

By Gillian Jones Time of article published Oct 22, 2012

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Johannesburg - Eskom has asked for a 16 percent increase in electricity prices each year for the next five years, the parastatal said on Monday.

"We seek to ensure that Eskom can cover the costs of supplying the electricity needed to power South Africa and invest in the future," CEO Brian Dames said in Johannesburg.

This would take the price of electricity from 61 cents a kilowatt hour in 2012/13 to 128 cents a kWh in 2017/18 -- more than  doubling the price over five years.

The 16 percent increase was broken down into a 13 percent increase for Eskom's own needs and three percent for the introduction of Independent Power Producers (IPPs).

The IPPs would be responsible for the first large-scale introduction of renewable energy into South Africa.

Electricity had been charged at below reflective costs and this was not sustainable.

"Our application balances South Africa's needs for a secure supply of power and for a sustainable electricity industry, with our recognition of the impact which tariff increases have on the economy, particularly on the poor," Dames said.

Eskom submitted its application for the increases to the National Energy Regulator of SA (Nersa) on Friday.

The current Multi-Year Price Determination, MYPD2, ends on March  31, 2013.

Nersa will announce its final decision in February, following an  extended period of consultation and public hearings.

"This is the start of a process. This is not a decision. A decision will be made by the regulator," Dames said.

The application proposed a "price-path" which would ensure electricity prices covered the full cost of producing it. This would include operating costs, such as coal, maintenance and employees, and the cost of servicing the debt raised to finance Eskom's new build programme of R337 billion over the five years.

Dames said coal made up 56 percent of Eskom’s primary energy costs.

The price of coal had been increasing far above inflation due to  ageing mines and growing competition for South African coal.

Dames called for a country pact to contain coal cost increases to no more than 10 percent a year.

Eskom's application proposed a tariff structure to cross-subsidise poor households that used little electricity. In terms of this, these households would get single-digit price increases.

Dames said the parastatal would apply to Nersa this week to review a special pricing agreement it was tied into with Australian  miner BHP Billiton for its aluminium smelters in KwaZulu-Natal.

"The special pricing agreements link the price the smelters pay for electricity to the dollar price of aluminium and were entered into in the 1990s when Eskom had surplus generating capacity, which  is no longer the case."

As the terms of the deal are secret, it is not known how much BHP Billiton pays for electricity, but it is estimated to be below cost.

In contrast to the MYPD1 and MYPD2, which both spanned three years, Eskom was now proposing a five-year determination for MYPD3
to ensure a predictable, longer-term price structure.

The Democratic Alliance objected to the price increases.

"I will meet with the regulator, Thembani Bukula, this week to urge Nersa not to accept Eskom’s proposals," DA MP David Ross said in a statement.

"We will continue our calls for an alternative pricing model in which consumers and businesses are not made to pay for inefficient capital expenditure programmes by a monopolistic state-owned energy  provider." - Sapa

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