/ 9 April 2008

Power prices ‘must double by 2010’

There is an urgent need to double electricity prices over the next two years, Eskom tells the National Electricity Regulator of South Africa (Nersa) in its recent application for a tariff hike.

”Thereafter, once they are at acceptable economic levels, prices can escalate marginally just above inflation rate,” the power utility says its submission released on Tuesday. ”The financial analysis already assumes a R60-billion government loan and aims to maintain Eskom’s credit rating to enable the company to fund the build programme.”

Nersa made an edited version of Eskom’s application available on its website on Tuesday. Earlier, it said sections of the submissions would be withheld to protect the company’s position in coal sales deals.

In its application, Eskom asks for a revision of the 2008/09 electricity price hike from 14,2% to a 53% real increase, or a 60% nominal increase.

”If the status quo remains, the price increase for 2009/10 will be almost 100%,” Eskom says, adding that it fully recognises the proposed tariff hikes could have a negative impact on customers with ”undesirable social impacts”.

Eskom says it incurred higher primary energy costs in 2006/07 and 2007/08. Projections for 2008/9 will result in the utility barely breaking even in the current financial year, and it could incur significant losses in the next one.

The power utility said there are a number of options to soften the effects of sharp price increases on the poor. ”A simple and easy way is to implement a method applying a lower price increase to tariffs that should receive protection while increasing the other tariffs.”

Deals protection

Earlier, Eskom spokesperson Andrew Etzinger said the application to withhold sections was to protect the company’s position in ”hardcore” coal sales deals. He said that without this stance, the company might have to pay more for coal, pushing the price of electricity up even more.

The company is currently in negotiations with mining houses to buy about R45-million-worth of coal, currently at a spot price of about $100 a tonne, said Etzinger. ”Unfortunately this means that discussions are hardcore. We are not talking about 1% or 2% here or there, so we have to make sure our negotiating position is as strong as possible.”

The application document contains details of deals already concluded, he said. ”It is a sound commercial decision not to disclose the information about the concluded contracts that are captured in our application. It would compromise Eskom’s position at the negotiating table.”

This also applies to information on its energy-saving campaign. The company has put several energy-saving initiatives out to tender as part of its bid to avoid current power shortages that have led to scheduled electricity blackouts.

”We don’t want to reveal the negotiating targets because we will find it difficult to manoeuvre … the dynamics are quite serious,” said Etzinger.

However, the Democratic Alliance (DA) and trade union Solidarity want Eskom to release a full, unedited report of its application. In separate statements on Tuesday, both said electricity consumers are entitled to know why the increase is needed.

”There are no substantial grounds for Eskom to keep information regarding the tariff hike a secret as Eskom is a public enterprise owned by the state and financed by public money,” the DA said.

Solidarity said it would write to Eskom asking for its reasons for withholding parts of the report. ”Given the circumstances in which Eskom finds itself, it is in the interest of every electricity consumer to be fully informed of the planned tariff hike,” it said.

New power deal

Meanwhile, Eskom has concluded a five-year agreement to receive an additional 250 megawatts (MW) of power from Mozambique’s Cahora Bassa hydro-electric power station, it said in a statement on Wednesday. The agreement was signed in Mozambique last Thursday.

In terms of the agreement, Cahora Bassa will make 250MW available to Eskom from its fifth generator, bringing the total amount Eskom can import from Cahora Bassa to 1 500MW. EDM, the Mozambican electricity utility, will also receive 50MW additional capacity from the fifth generator at Cahora Bassa.

The 250MW capacity for Eskom is in addition to its current long-standing agreement with Cahora Bassa. A hundred megawatts of this additional capacity was already being supplied from Friday, and this will be ramped up in the coming weeks, Eskom said. — Sapa