Nersa to review power tariff scheme

Nersa will take into account changes in the economic environment and a government decision to guarantee loans for state utility Eskom when deciding the next tariff rise, an official said on Tuesday.

Thembani Bukula, a regulator member responsible for electricity, said the environment had changed drastically since last June when the National Energy Regulator of South Africa approved a total 27% tariff hike, short of the 53% hike requested by Eskom.

“Economic conditions have changed, the government has indicated that they will provide guarantees, the capital costs of building a power station have increased and the [Eskom] rating has been downgraded—we have to take all of the changes into account,” Bukula told Reuters in an interview.

“Our target is to implement cost-reflective tariffs within five years, by 2013,” adding that while so far tariffs were raised across the board, in the future a scalable tariff system was on the cards.

Currently about 76% of households have power, and the target was to make it 100%, he said.

South Africa’s Treasury said last week it will provide the state-owned utility with loan guarantees of R175,97-billion over the next five years to help it raise funds for its R343-billion new power investment programme.

Eskom, which provides 95% of the country’s power, has been rationing electricity since last year, when the national grid nearly collapsed, forcing mines to shut for five days and costing Africa’s biggest economy billions of dollars.

A decision last year by ratings agency Moody’s to cut Eskom local and foreign currency ratings has put pressure on the firm to secure the necessary funding amid a global credit crunch.

Bukula said the government’s decision to ask Eskom to repay a R60-billion loan two years earlier than anticipated and the large rise in costs for two new power plants on the back of volatile commodity markets would impact the decision.

Eskom has said it will apply for a tariff increase to help fund its power expansion programme over the next five years.

Chronic power shortages, caused by years of underinvestment coupled with surging demand, have unnerved foreign investors already anxious about the fallout from the global crisis and a possible shift in economic policy after elections due April 22.

When granting a tariff hike last June, Nersa said at the time that electricity prices could rise by between 20% to 25% a year over the next three years, but Bukula said this calculation could be changed as well, “but we will only know after Eskom has submitted its application,” he said.

Tarrif application
The utility said it had delayed the submission to take into account the impact the financial crisis would have on consumers.

Bukula said that given the delay, Eskom’s target to have the application processed before the start of its new financial year in April was unrealistic, as it took three to four months to process an application at any given time.

Each tariff hike is based on Nersa’s policy to both secure electricity supply and to ensure that power was accessible and affordable, he said, adding that inflation pressures were more of a central bank’s concern.

He said, however, that the poorest were given a smaller hike last time around and the same could happen again.

He also said the regulator would play a role in the shaping of the new energy strategy, particularly to ensure the target of 30% of new generation capacity coming from independent power producers [IPPs] would be reached.

Contrary to common belief, Bukula said the current tariffs were not linked to the returns that an IPP would get from an investment, and should not stand in the way.

“The returns for an investor depend on the amount put in and the money borrowed ... when deciding on returns we are trying to make in an attractive investment for them, above what they would get when depositing the money in a bank,” he said, referring to incentives to be offered to IPPs. - Reuters

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