Energy regulator forces Eskom to cut its costs

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

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.

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. 

Advertisting

Nehawu launches urgent court bid over protective gear for health...

The health workers’ union says the government has rebuffed its attempts to meet about mitigating risks to workers

Stay at home, Cyril said. But what about the homeless?

In Tshwane, forcing homeless people off the street resulted in chaos and the abuse of a vulnerable population. In Durban, a smooth, well-planned operation fared far better

Press Releases

Everyone’s talking about it. Even Kentucky

Earlier this year South African fried chicken fast-food chain, Chicken Licken®, launched a campaign for their wallet-friendly EasyBucks® meals, based on the idea of ‘Everyone’s talking about it.’

New energy mix on the cards

REI4P already has and will continue to yield thousands of employment opportunities

The online value of executive education in a Covid-19 world

Executive education courses further develop the skills of leaders in the workplace

Sisa Ntshona urges everyone to stay home, and consider travelling later

Sisa Ntshona has urged everyone to limit their movements in line with government’s request

SAB Zenzele’s special AGM postponed until further notice

An arrangement has been announced for shareholders and retailers to receive a 77.5% cash payout

20th Edition of the National Teaching Awards

Teachers are seldom recognised but they are indispensable to the country's education system

Awards affirm the vital work that teachers do

Government is committed to empowering South Africa’s teachers with skills, knowledge and techniques for a changing world