Eskom, govt under fire at power price hearings

The government and Eskom were criticised for the present energy crisis at Friday’s National Energy Regulator of South Africa (Nersa) hearings into the power utility’s request for a proposed 53% tariff increase.

Eskom chairperson Valli Moosa and CEO Jacob Maroga said the increase was needed as the system was tight and the reserve margin was very low.

“The challenge that we face is very, very real and it is material,” said Moosa.

“When I joined in 2005 ... it was quite clear to me that some kind of crisis would hit us,” he said, adding that it was also known that it could not be avoided.

He said Eskom and the government proceeded to put programmes in place to address the looming crisis, and this included the capital expansion programme.

Speaking about the funding of that programme, Moosa said although subsidisation of Eskom had some role to play to alleviate its financial woes, it had to be asked what the negative effect of that would be.

“Fiscal injections are in effect a form of subsidisation funding energy needs. The question is who or what to subsidise, so that it does not have perverse and unintended consequences.”

Moosa said it would mean that higher income earners using the most power would be subsidised.

“Can we afford to subsidise higher income earners in Sandton, Hyde Park and Bishopscourt,” he said.

Users who had to be subsidised were lower income earners.

“Lower income earners are not the ones who got us into this problem. Their power usage is minuscule. The ones who use the most power are higher income earners—commerce and industry.”

Maroga said uncontrollable and unpredictable fuel and capital costs were key principals behind the hike.

“The volatility that we see we cannot absorb as a company.”

He said regulatory rules needed to allow for adjustment and changes in fuel and capital costs. The impact of these on the power industry had not been addressed.

He said that government support was needed.

“We require a very deep collaborative effort. Fundamentally we are here as the system will be tight for a number of years.”

Eskom was “working hard” on its capacity expansion programme.

“We are in a deep, deep challenge that is going to take some time to come out of.”

Eskom agreed with the recent energy summit proposal to gradually increase its prices, he said.

However, the utility was still asking Nersa for the 53% hike because it did not yet know how much the government, as its sole shareholder, would inject into it.

“We have got a revenue requirement that needs to be satisfied,” he said.

‘We created a monster’

Freedom Front Plus MP Willie Spies said Eskom had failed and was an unwanted child.

“Instead of a partnership combining state resourcefulness and financial stability with the free market’s innovation and efficiency, we created a monster that combined greed ... with inefficiency ... that feared no competition and acted in nobody’s interest, but that of its own top management,” he said.

Spies said three specific issues illustrated the point: Eskom’s management remuneration and bonuses, its management of coal reserves and its unequal treatment of its customers.

“Electricity is sold at a loss to industrial and international users, while it is sold at less than a 5% gross profit to redistributors and mines.

“This means Eskom sells 33,7% of its electricity at a loss while another 54,7% is sold almost at cost.”

Johan Smit, speaking on behalf of the Federation of Governing Bodies of South African Schools, said there were huge concerns in the education sector.

“Any increase in the electricity tariff will have a severe impact on schools in that schools would not be able to carry the costs,” he said.

That would means schools would either incur unauthorised expenditure or simply fall into non-payment of their electricity bills.

Investec Securities’ Madalet Session said current consumers should not finance the expansion of Eskom’s capacity to generate and distribute power over the next 20 years.

She said the costs of borrowing for Eskom’s expansion should be carried by the government.

Wits university professor Mike Muller said the “current jump” in the increase was because of a failure in risk management.

“Who has benefited at the public’s expense?” he asked.

The Chamber of Mines said that Eskom should increase its tariffs gradually over five years.

Dick Kruger, a chamber advisor, said the body supported an increase in tariffs for Eskom, based on primary costs.

However, this increase should be introduced over five years as a sudden hike would have a severely negative effect on the economy.

Kruger said government, as sole shareholder, had to provide additional support to fund Eskom’s bulk programme.

While the hearings continued inside, a group from the Anti-Privatisation Forum protesters sang and called for the proposed hike not to go through.

Eunice Mthembu, a member of the Soweto Concerned Residents group, which falls under the forum, said: “They are killing us, government is killing us. They are not thinking about the poor, they only think of the rich who live in Sandton.”—Sapa

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