Nowhere in their application do they commit to get to the cost-reflective tariffs through a reduction in costs or more efficient forms of management, the writer says. Photographer Ayanda Ndamane/ Independent Newspapers
Eskom has submitted its multi year tariff application to NERSA. In the said tariff application, Eskom wants electricity tariffs to be increased by a hefty 36%, which is over 30% above the prevailing inflation rate in South Africa.
This is in addition to the above inflation increase in tariffs that was approved by NERSA in the last financial year 2023/2024.
In its application, Eskom claims that it wants so-called “cost reflective” tariffs.
What they are effectively saying to the citizenry is that they want the freedom to live a lavish lifestyle, increase costs the way they want and we should pay for their inefficiencies.
Nowhere in their application do they commit to get to the cost reflective tariffs through reduction in costs or more efficient forms of management.
Furthermore, they do not cite the costs due to red tape that result from inefficient government policies. Eskom, in our opinion has two options to be sustainable (a) it is to increase sales, by either increasing its customer base, or increasing prices, or (b) it is to reduce costs.
The latter being their only alternative, as, according to their application they are bleeding sales as with an increase in the cost base. Eskom does not seem to have considered the possibility that they may be driving away paying clients through these high tariffs.
With cogeneration having been liberalised, even high energy consumers will investigate other alternatives that may then be cheaper than using Eskom Grid power.
According to Eskom :
“ FY2023 was a challenging year for Eskom form an operational point of view. Plant availability deteriorated to 56.03% (2022: 62.02%, MYPD 5 FY2023 assumption of 62%), with an unplanned load losses rising to 31.92% (2022: 25.35%) and planned maintenance at 10.39% (2022: 10.23%).
Load had to be curtailed by an estimated 13 476GWh (2022: 1605 GWh), with load shedding on 280 days (2022: 65 days), Gas turbines produced 4 116 GWh (2022: 2 725 GwH) at a cost of R29.7 Billion (2022: R14.7 Billion) for Eskom and IPP OCGTs.
Overall, IPP programmes delivered about 5 100 GWh less than anticipated, contributing to the generation capacity shortfall. Transmission system minutes performance deteriorated to 4.71 minutes (2022: 2.88 minutes), with one major incident (2022: two).
Distribution network performance remained resilient, with frequency and frequency of supply interruption well within target, although energy losses remain too high. Arear municipal debt escalated to R58.5 bn (2022: R44.8bn), where NERSA did not allow for arrea debt in its revenue determination.
From a financial sustainability point of view, the net loss after tax worsened to R23.9 Billion (2022: R11.9 billion).”
This paints a grim picture indeed and shows a company in deep trouble needing a turnaround plan.
No one in his right mind would not sympathise with this sob story, however it’s a story that Eskom and its shareholders must deliberate on and find solutions to rescue the company.
It must however be categorically stated that none of the above issues are as a result of the paying clients and therefore they should be thanked instead of being punished though a way above the increase in tariffs. \
Eskom, I am reliably told, is actually paying incentive bonuses as if it is not a company in trouble, and it expects the few paying customers to carry this load. It is not behaving like a company in deep trouble.
Now, enter NERSA, the body with the task of trying to convince the public to swallow such exorbitant price increases. I am saying they have the poisoned chalice because they have the task of implementing a bad law.
As a result of them having to implement a bad law -admittedly they never complained that it is bad -, they have no happy client.
Eskom is unhappy with them for never getting their so-called “cost reflective tariffs”, the municipalities are not happy and the public is not happy.
Price regulation is not unique to South Africa, what is unique to South Africa is that the electricity regulation act expects the regulator to set a tariff that makes the monopoly sustainable.
According to Section 15 of Act 4 of 2006, “the regulator must set tariffs that enable an efficient licensee to recover full cost, including a reasonable margin or return.
This is doublespeak, because how does a “reasonable” margin different from a “reasonable profit”?
In what world does a liberalised competitive market allow for a regulator to price fix and create a cartel?
One needs to question if the Competition Act actually allows for the setting of prices in a supposedly competitive market.
So instead of the law being improved in the 2023 Bill, it has actually been made worse, especially as there will be more licensees producing and selling electricity. But then again, NERSA did not complain, and we wish them luck.
NERSA has failed Eskom dismally as they have not allowed Eskom to recover its full costs as a licensee, or maybe Eskom never qualified as an efficient licensee. Only NERSA can answer this.
So according to the law, NERSA must protect the monopoly through its tariff setting regime, instead of protecting the public. Under normal circumstances, price regulation is there to protect the public from a monopoly as it can always compensate for its inefficiencies and waste by increasing prices and the public has nowhere else to go. In South Africa, tariff regulation is there to protect business. Where in the world does that make sense?
In conclusion, we reject with contempt Eskom’s extortion of the public, and we urge NERSA, for a change to be on the side of the public. Electricity inflation has been way above CPI for the past 10 – 15 years and the impact of this on job creation is huge. We do agree that Eskom needs an increase, but we believe an increase of CPI plus 1.5% is reasonable.
NERSA should disregard Eskom’s submission.
They must make up whatever shortfall through cost reduction measures. NERSA should join forces with the community and challenge the validity of the ERA Act as it is not in the interest of the public and general electricity payers, but in the interest of licensees.
Producers and distributors.
S Hlope is the CEO of the Economic Intervention Forum of South Africa.
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