Eskom tariff increase to help buy diesel

Eskom says it needs to raise prices by almost double the rate the National Energy Regulator (Nersa) has so far allowed so the company can buy in electricity and diesel to help curb shortages in its own generation capacity.

“What we’re here for is to ask for what we think is fair,” Eskom acting chief executive Brian Molefe said at public hearings held by the national energy regulator in Johannesburg Tuesday.

Nersa is holding two days of consultations after Eskom, which is struggling to meet demand in Africa’s most-industrialised economy, asked to raise prices by as much as 25%, or 12% points more than first allowed for the year to March 31 2016.

In October, the utility got permission from the regulator to increase charges by an average 13% starting April 1 to help it recover unbudgeted costs for the three years through 2013. The regulator had previously approved an average annual increase of 8% in each of the five years through March 2018. The inflation rate was 4.6% in May.

In its new price application, Eskom is asking for an additional 9.6% points to fuel gas turbines that it uses as a last resort, and to carry on power purchases from companies such as Sasol and Sappi.


Environmental levy

It had also sought a further 2.5% points to pay for a 57% increase in the environmental levy to 5.5 cents a kilowatt-hour, which was announced by Finance Minister Nhlanhla Nene in his budget speech in February, but has yet to be introduced. Should the National Treasury not charge the levy, Eskom won’t have to ask for that amount, Molefe said.

If the levy is published in the Government Gazette after July 1, the associated tariff increase can only take effect in the year starting April 1, 2016, Nersa Chairperson Thembani Bukula said in an interview Tuesday.

The City of Cape Town would need an additional R700-million to purchase power at the higher rate, Deputy Executive Mayor Ian Neilson said at the hearing.

Not being able to pass increases on to customers “certainly will be a financial position that we aren’t willing to accept”, he said.

Sibanye Gold, the biggest producer of South African gold, would lose as much as R8.2-billion in revenue from 2015 to 2017 from operations that would have to be closed if the increase were granted, Technical Services Senior Vice President Peter Turner said. The company, which buys about 1.6% of the electricity the utility generates, forecasts a power bill of R4.1-billion by 2017, compared with R2.8-billion last year. – Bloomberg

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Paul Burkhardt
Paul Burkhardt works from Johannesburg. Bloomberg reporter covering oil/gas, renewables, mining and unions in South Africa and sub-Saharan region. Retweets not endorsements. Paul Burkhardt has over 1431 followers on Twitter.

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