Energy regulator forces Eskom to cut its costs

Studies of Eskom’s costs by bodies such as the World Bank have shown that it employs an excessive number of staff — twice as many as its peers — and pays much higher wages. (Paul Botes/M&G)

Studies of Eskom’s costs by bodies such as the World Bank have shown that it employs an excessive number of staff — twice as many as its peers — and pays much higher wages. (Paul Botes/M&G)

The National Energy Regulator (Nersa) has told Eskom it cannot pass cost increases on to consumers. Rather, it will be expected to cut operational costs and inefficiencies.

Studies of Eskom’s costs by bodies such as the World Bank have shown that it employs an excessive number of staff — twice as many as its peers — and pays much higher wages.

A World Bank study, referred to by Nersa, puts Eskom’s average annual staff cost per employee at $61 000 (R708 000) compared with $13 000 (R151 000) for employees in other sub-Saharan countries. The average salary of an Eskom employee is R59 000 a month.

In Decision and Reasons for Decision, a 118-page document released this week, Nersa outlines why it cut the 19.9% tariff increase requested by Eskom for 2018-2019 to just 5.23%.
This put projected annual revenue for the utility at R190-billion instead of the nearly R220-billion it had applied for.

The bulk of disallowed increases related to Eskom’s expenditure and primary energy budgets. Nersa was extremely critical of Eskom’s failure to reduce operational and maintenance expenditure, as well as its continuing inability to provide accurate forecasts.

Nersa cut the utility’s operating costs by R11-billion. This involves all costs incurred in the day-to-day running of the business such as personnel, maintenance, arrears debt and corporate overheads. The regulator said its decision was informed by Eskom’s “unwillingness to implement stringent measures to contain its costs”.

Nersa’s benchmark test, which analysed Eskom’s performance, showed that, in the 2007 financial year, it produced 239 109 gigawatt hours (GWh) of electricity with 32 954 employees, an average of 7.26GWh per employee. Eskom is now producing 216 771GWh with 39 186 employees, 5.3GWh per employee.

“This means that Eskom is producing less GWh with more employees and higher employee costs,” said Nersa.

According to this analysis, there’s an excess of 6 232 employees at an annual cost to the utility of R3.8-billion.

In the report, the energy regulator also outlines Eskom’s overspending on bonuses “despite the decrease in its sales volumes and low profit”.

Nersa reduced Eskom’s allowed primary energy costs by R20-billion, down to R85-billion. It had applied for R104.8-billion. This was determined mainly by focusing on reducing coal usage costs by R10-billion and energy purchased from independent power producers by R7.6-billion.

Eskom spokesperson Khulu Phasiwe told Business Report this week that it would not reduce costs by retrenching workers but instead would improve operational performance and reduce primary energy costs.

Tebogo Tshwane is an Adamela Trust trainee financial reporter at the Mail & Guardian

Tebogo Tshwane

Tebogo Tshwane

Tebogo Tshwane is an Adamela Trust financial journalism trainee at the Mail & Guardian. She was previously a general news intern at Eyewitness News and a current affairs show presenter at the Voice of Wits FM. Tshwane is passionate about socioeconomic issues and understanding how macroeconomic activities affect ordinary people. She holds a journalism honours degree from Wits University.  Read more from Tebogo Tshwane

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