It is all a bit unseemly; rather like the bill arriving after a meal at a restaurant and no one offering to pay it.
In Eskom’s case, the matter is complicated by the fact that outsiders do not have enough information to work out how the bill is made up so that costs can be apportioned fairly.
What is clear, however, is that electricity tariffs are going up significantly to fund higher running costs, partly because Eskom mismanaged its energy requirements and partly to build new generation capacity.
The debate, which is generating some heat of its own, is basically: should the user — particularly the heavy user — or the taxpayer pick up the tab?
According to a number of submissions to the National Energy Regulator of South Africa (Nersa), the government should pick up Eskom’s tab.
Submissions from Investec, the Steel and Engineering Industries Federation of South Africa (Seifsa), the Chamber of Mines and the African National Congress argue at public hearings on the tariff hike that the government should do more to aid the embattled utility and prevent the impending shock to consumers and the economy.
Seifsa argues that Eskom’s price increases should be limited to no more than 20% in the coming years to prevent knock-on effects for the economy. It also says Eskom should extend borrowings as far as possible, without damaging its ratings status.
The government should then step in with share capital or a ”quasi-equity’ infusion as a ”critical top-up”.
Similarly, the Chamber of Mines argues that the government, as 100% shareholder in Eskom, should provide ”additional support to fund [Eskom’s] build plan”.
Seifsa, the chamber and other business players also called for the scrapping of the 2c/kWh levy on electricity until South Africa’s inflationary outlook stabilises.
But will transferring the cost from the consumer to the taxpayer be fair? Aren’t some consumers more equal than others?
In a submission to Nersa, Willie Spies of the Freedom Front Plus argues that Eskom’s treatment of its customers is skewed. According to the party, Eskom sold power to neighbouring countries last year at a loss of 30%, industrial consumers at a loss of 0,5%, mines at a profit of a mere 5% and residential and rural users at a profit of 159% and 109,4% respectively.
While a cost reduction for bulk consumers makes sense, what is unacceptable is the ”discrepancy between the tariffs charged to domestic households compared with industrial and mining users”, says Spies.
These figures echo the critique of Eskom’s tariff regime by T-Sec economist Mike Schussler. He argues that contrary to Eskom and the government’s claims, South Africa does not have the world’s cheapest electricity. Its industry might, he says, but South African residential consumers pay well above the international norm for their power.
According to Schussler, the difference between what Eskom charges its residential customers and industrial customers is 168%. The international average of residential versus industry tariff is a more modest 51%.
Schussler says there is some merit in the argument that the state should pay, given that the government is the sole shareholder in Eskom and benefits from its profits.
Two years ago the state received about R2-billion in dividends from Eskom.
Big industry, the largest users of energy, are in multi-year contracts with Eskom and are unlikely to feel a price hike in the way residential and commercial users will, Schussler says. The potential price hike is aimed at commercial and residential customers, most of whom buy from municipal providers.
”An extra shock like this will put … middle-income houses under water,” he says. For large malls, banks and commercial centres ”electricity will suddenly become a major input cost where it wasn’t before”.
He argues that primary energy costs should not be passed to consumers, something Eskom highlighted in its plea to Nersa.
Eighteen percent of Eskom’s coal is bought on the spot market; the other 82% is bought through cost-plus and fixed-cost contracts. Schussler agrees that some of the brunt of price increases should be passed on to the consumer, but that price increases on the volatile coal market should not because the purchase of spot coal is a result of poor management decisions by Eskom.
The Energy Intensive Users Group (EIUG) hit back at Schussler, saying that Eskom’s figures showed that large industrial and mining customers subsidised domestic users by about R2,2-billion. It told Business Day that the true cost of supplying electricity to households was more than three times higher than supplying electricity to large customers.
But Schussler wants to know how the EIUG gathered information that has not publicly available to other interested parties. He chalks this up to a fundamental lack of transparency on Eskom’s part and an example of preferential treatment given to Eskom’s big customers.
The chairperson of the South African National Energy Association, Brian Statham, argues that there might be truth to the EUIG’s claims.
It is much cheaper for a utility to provide large amounts of electricity at higher voltages to a single entity, than it is to provide power to a large number of residences, covering a large area, at a much lower voltage.
He argues that to expect government to step in is ”simplistic”. At some stage the government will need to recoup the cost for other purposes.
”The tariff design needs to look at the real cost of supplying energy to each sector,” he says.
The tariff structure also needs to examine the economic value generated by each sector.
Statham has called for a sliding scale to be incorporated into the tariff application whereby consumers pay increasing fees for electricity used above a certain amount. With additional consumption comes additional cost.
This is a simple proposal that does not require the installation of additional equipment, such as smart meters, at further cost to Eskom. ”The calculation can be done quickly and cheaply,” he says.
The National Treasury would not comment on any of the proposals made to Nersa. It is believed, however, that it is examining the various suggestions made at the hearings, internal discussions and in talks with other government departments.
