March 31st, 2009 | 
Author:
Eskom is likely to apply to the National Energy Regulator of SA (Nersa) for a 34% increase in electricity tariffs for the coming year, well down on the 88% it was contemplating just a few weeks ago.
The 34%, mainly to cover increases in operating costs rather than the cost of its new build programme, would be roughly in line with the real increase of about 25% a year agreed on at last year’s National Electricity Summit and takes account of the damage an excessive hike could do to an economy expected to show hardly any growth this year.
It is understood the proposed increase follows talks in the government in which the Department of Public Enterprises — which as Eskom’s shareholder department favoured the 88% increase for the coming year, and 54% for the next — was persuaded to settle for less. The Treasury, which is believed to have argued for a lower increase, has already agreed to inject R60bn of capital into Eskom over three years and to guarantee R176bn of new and existing debt.
Though it is Nersa that decides tariffs, Eskom needs the government’s support for whatever increase it applies for.
Eskom’s board is due to meet this week on its application, which was originally supposed to go to Nersa in October. Time is running out because the current tariff determination expires tomorrow, and Nersa has to hold public hearings before deciding on the next, three-year, tariff determination.
Eskom chairman Bobby Godsell said yesterday Eskom was likely to submit its application soon, but emphasised that the board had made no decisions on the application. He declined to comment on what the increases might be. He said Eskom’s goals were to get to cost-reflective tariffs as quickly as possible and keep its build programme online, but it was aware of the effect high increases would have and wanted to limit these to what it needed to meet its goals.
Eskom has been seeking a price for electricity that would recover the full operating cost of providing it. “We think that is important, not only for Eskom itself, but also to allow independent power producers to produce electricity and co-generators to sell in the market at a realistic price. It is also important for demand-side management — because the most sensible way to promote energy efficiency is to have electricity realistically priced,” Godsell said. Eskom’s objective was also to proceed with its R343bn build programme, part of SA’s economic stimulus package. “It would not be in the national interest to delay or slow the programme,” Godsell said.
Eskom is building two coal-fired base-load power stations, each of which is now expected to cost more than R100bn and will start generating power only from 2011, as well as some smaller stations. The company is expected to post a loss for the current financial year, and its balance sheet will be under pressure for the next couple of years as it burns cash on the build programme, which will provide the electricity SA needs if it is to avoid the shortages that were the major factor in last year’s power crisis. Eskom had long argued that electricity prices had to double in real terms to reflect the true cost of producing power, and after the power crisis it asked for a 60% increase. Following the African National Congress-inspired electricity summit, which brought together business, the government, labour and Eskom, and public hearings at Nersa, the regulator agreed to a total increase of 27,5%, indicating that increases of 20%-25% a year were projected over the next three years.
Eskom is now said to need a 32% increase just to cover higher operating costs, and to the extent that tariffs fall short of what it needs, it will have to borrow more.
University of Cape Town professor Anton Eberhard warned yesterday that if tariff increases were much less than 80%, Eskom would not have what it needed for new investment. “I f we don’t bite the bullet (of) tariff increases, the consequence will be to threaten investment and security of supply.”
Keep it Green
Posted in