/ 29 May 2008

Eskom chief set to justify tariff hike

After almost 40 institutions had denounced Eskom's proposed 53% tariff increase, it was up to the power utility's CEO on Thursday to convince the regulator why the massive hike was necessary. Eskom chief executive Jacob Maroga was due to be the last speaker after three days of public hearings in Pretoria on the proposed tariff increase.

After almost 40 institutions had denounced Eskom’s proposed 53% tariff increase, it was up to the power utility’s CEO on Thursday to convince the regulator why the massive hike was necessary.

Eskom chief executive Jacob Maroga was due to be the last speaker after three days of National Energy Regulator of South Africa (Nersa) public hearings in Pretoria on the proposed tariff increase.

Maroga was to address concerns raised during the hearings, where it was pointed out that the public should not be made to pay for bad planning on the part of the utility and the government.

Driving home the point during the first part of Thursday’s hearings, AgriSA’s chief executive, Hans van der Merwe, described the electricity crisis in South Africa as a classic and costly example of institutional and policy failure.

He said the public required a soft landing and the steep increase asked for by Eskom would have a destructive affect on South Africa.

This was also the point made by several other speakers on Thursday. The regulator heard that poor planning by Eskom was no justification to punish the consumer.

Nersa should use its power and tell Eskom that it would not be granted a further increase this year, said the South African Small and Medium Enterprise Forum.

The forum’s Tebogo Khaas said the hike would destabilise the small and medium enterprises industry, which contributes 35% of the country’s gross domestic product. He suggested the increase be capped at the 14,2% already approved and that future increases be limited to CPIX (consumer inflation less mortgage costs).

Poor planning

Another theme in submissions made on Thursday was that Eskom and the government should pay for their lack of planning. Finance officers for the country’s biggest cities questioned Eskom’s ability to plan and forecast effectively.

Kris Kumar of the Chief Financial Officers’ Forum for Metros said the regulator should carry out an independent risk assessment to develop a functional and efficient risk-management strategy. He questioned how Eskom could — within months after being granted an increase — return to the regulator to ask for a further substantial tariff hike, saying this indicated a lack of planning.

“We recommend an oversight committee be established to review Eskom’s entire financial profile [and] funding requirements, as well as its credit rating,” he said, adding that a 53% increase would cause “major disruptions” in local government’s ability to deliver services.

Sandile Maphumulo of the eThekwini municipality had the same concerns as Kumar, saying Eskom’s return to the regulator indicated incompetent or very poor planning and forecasting. He said there was still a lack of transparency from Eskom and this made it difficult to comment on its requests.

He also said that if Nersa approved Eskom’s 53% tariff increase, Durban residents would see a 32% rise in their tariffs.

The National Consumer Forum said electricity prices should be more equally applied to all users and that residential users be excluded from further increases. Residential customers must stop subsidising neighbouring states, industry and mines, said the forum’s Lillibeth Moolman, adding that it is the government’s responsibility to provide electricity in an affordable and sustainable manner.

Crisis continues

At a Mail & Guardian Business Breakfast in Johannesburg earlier on Thursday, Eskom’s Maroga emphasised the seriousness of the electricity crisis in the country and the dangers relating to the current lack of a reserve margin in power generation.

When there is a high enough reserve margin, Eskom can run its cheapest power-generation plants most often and its more expensive ones least often. However, at present it is forced to run all its plants constantly, pushing up costs.

In 2002, the reserve margin was 25%. This has since shrunk to the current 8% to 10% margin.

Though scheduled power cuts have been halted for now, the threat of load-shedding remains.

A worst-case scenario, he said, would be a complete electricity failure countrywide. Eskom would need up to two weeks to recover from such a large-scale disaster.

“We are here [in a time of crisis] because of policy, regulation and planning issues,” Maroga said, adding that although new power stations are being built, demand has to be reduced in the meantime.

He also detailed Eskom’s massive, R1,3-trillion capital expansion programme in coming years to cope with rising electricity demand. This will require significant funding from shareholders, among others, but Eskom’s proposed tariff hike is also aimed at financing the expansion programme.

“We will require a regulatory framework mechanism to deal with the period of tight reserve margins and high costs,” said Maroga.