Eskom electricity hikes inevitable, says union

Protestors outside Gallagher Estate at the Johannesburg Nersa public hearings. (Gallo)

Protestors outside Gallagher Estate at the Johannesburg Nersa public hearings. (Gallo)

Paul Joubert said the monopolistic structure of the electricity market made it impossible to know whether the prices Eskom and energy regulator Nersa agreed on would be appropriate.

Last week, the National Energy Regulator of South Africa (Nersa) held hearings into the proposed increase. Eskom has asked for a 16% increase in electricity prices each year for the next five years.

The proposal will more than double the price of electricity in five years, taking it from 61 cents a kilowatt hour in 2012/13, to 128 cents a kWh in 2017/18.

Joubert suggested that independent electricity generators be allowed into the energy market.

"[We] submit that the electricity generation space be opened up for independent generators to directly conclude agreements with consumers or local distributors of electricity, with Eskom's only role in such transactions being facilitating the 'wheeling' of the electricity over the transmission network for a nominal fee," he said.

"By limiting the freedom of other possible investors in the electricity generation market to attempt to beat these forecasts, and possibly profiting due to superior ability, Eskom, Nersa and the government are acting to the detriment of South African consumers," he said.

Joubert said any mistakes that Eskom and Nersa made over previous hikes affected consumers who, except for the option to generate their own power, had no choice but to buy electricity from Eskom.

"However, it is clear from comparing assumptions that both Eskom and Nersa have made in the past to what actually transpired, that they are not very good at getting forecasts right even over an horizon of two or three years, to say nothing of doing it over five years, or over a period of several decades," he said.

Numsa protest The National Union of Metalworkers of South Africa (Numsa) said early January that it would protest against Eskom's proposed 16% electricity increase.

If Eskom's application succeeded, it would result in job losses and general price increases, Numsa secretary Irvin Jim said.

Numsa had conducted a snap electricity cost survey among 10 companies with energy-intensive production processes in November 2012.

It found that 37.5% of them anticipated closing down as a result of the proposed increase. Economic models show it is better and fairer for tariffs - not taxes - to pay for electricity, the National Energy Regulator of South Africa heard.

If electricity was sold at the "right price", it would be used more efficiently, so less would have to be invested in new generating capacity, Eskom chief executive Brian Dames and chief financial officer Paul O'Flaherty said in a joint presentation at public hearings called by Nersa.

An average annual increase of 13% was intended to meet Eskom's needs over five years, plus 3% to introduce new independent power producers – a total of 16% a year. 

Eskom rating downgraded
​In early January, credit ratings agency Fitch adjusted Eskom's ratings and outlooks.

Eskom's long-term local currency IDR (Issuer Default Rating) was lowered to "BBB+" from "A" with a stable outlook. An IDR is an opinion on an entity's vulnerability to default on its financial obligations.

The agency said future developments which could lead to positive rating actions for Eskom included an upgrade of South Africa's sovereign rating, provided the strength of Eskom's links with the sovereign did not weaken.

Eskom has said its downgrading by Fitch highlighted the need for the parastatal to be financially sustainable. – Sapa

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