Eskom uses tight power supply to defend tariff hike

South Africa’s power supply is still vulnerable despite the country being in a recession and could worsen if state-owned utility Eskom fails to get a tariff increase to fund its expansion, Eskom said on Monday.

Eskom, which provides 95% of the country’s power, has been battling an electricity shortage since January last year, and has applied for a 34% increase in tariffs to build new power stations to plug a supply shortfall.

Defending its unpopular request to increase tariffs, Eskom chief executive Jacob Maroga told a public forum the global economic crisis had badly impacted Eskom’s ability to borrow.

South Africa’s power regulator, the National Energy Regulator of South Africa (Nersa), which organised the hearing on the tariff request, said only one of 171 written submissions on Eskom’s tariff application was in favour of the hike.

Critics argued higher tariffs could put additional pressure on consumers, hurt by the fallout of the economic slowdown and the first recession in Africa’s biggest economy in 17 years.

“These are extraordinary times and they have an impact on us,” Maroga said at the public hearing in Pretoria. “If we slow [the build programme], you are lengthening the risk that South Africa is exposed to in terms of security of power,” said Maroga.

He said the utility’s reserve margin or spare capacity was still tight, and far below Eskom’s target of 15%. Nevertheless, South Africa would be spared blackouts during its current winter season because demand from big consumers was low.

Funding gap
Maroga said Eskom’s capital costs had risen tenfold in the past five years as the utility embarked on a R385-billion expansion programme.

Despite loans from international funding institutions and government guarantees, Eskom was still short of R26-billion needed for this financial year.
The funding gap for Eskom’s next financial year was R52-billion rand, said Maroga.

He said while Eskom had delayed smaller power projects, the bigger projects needed to go ahead, including two 4 800MW coal-fired plants due to come on stream in 2015 and 2016.

On their part, local government and industry officials said Eskom’s request lacked merit, and asked Nersa to give a smaller raise or reject the application altogether.

Dick Kruger, an adviser at the Chamber of Mines, which groups the country’s mining industry including gold, platinum and coal, said miners favour a multi-year tariff so they can plan their finances better.

“It gives you some certainty over a period of time what you can expect to pay for your energy input,” he said.

Eskom says its tariff request is an interim one to cover the period to end-March 2010, but that it will submit a new proposal later this year to cover a three-year period to March 2012, based on a revised funding model.—Reuters

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