Dire coal shortages: Eskom

Cape Town - Eskom bosses told Parliament on Tuesday the company was still battling dire coal supply shortages and cash flow problems which demanded further tariff increases in coming years.

Eskom chief executive Jacob Maroga told the legislature's portfolio committee on public enterprises the coal supply was the main culprit responsible for the electricity black-outs South Africa faced last year.

"It is still an issue which in the long-term we have to resolve. This dependence on coal can put the future stability of our economy at risk."

Eskom revealed on Friday that from 2007 coal prices and supply became a problem and that in the long-term the company did not have enough mines to supply it.

Though it now has 40 days of supplies, it acknowledged it has not recovered losses from reneging contractors and that an upturn in the economy, accompanied with higher prices, would put it under renewed strain.

Maroga said the cost of "keeping the lights" on despite shortages last year was clearly reflected in the company's balance sheet, which shows a loss of R9.5bn.

Balancing the books this year, servicing its debt and implementing its infrastructure investment was only possible if Eskom could fully recover generating costs from tariffs, he said.

Eskom plans to submit its funding model to the National Energy Regulator of SA (Nersa) at the end of the month, followed by price increase applications for the next three years.

It is expected to demand substantial increases after getting the nod this winter for a 31.3% increase.

"Our application to Nersa will close the loop for the next three years," he said.

Public Enterprises Minister Barbara Hogan came out in support of further increases, saying though she did not want to put pressure on Nersa, Eskom must be able to recover its generating costs or it would not be able to afford its extension programme.

The minister said government was mulling ways of protecting the poor from a tariff spike and "mitigating measures" in this regard would be built into the funding model.

Eskom says it is some R80bn short of the R400bn it needs to invest to build capacity to be able to satisfy the country's future power needs.

But it has come under sharp criticism from the opposition for incurring massive coal losses and losing some R6.8 billion last year as a result of embedded derivatives in contracts with clients with smelters.

The sale price of electricity in these long-term contracts has been linked to the price of aluminium which plunged last year as the global economy went into crisis.

Eskom chairman Bobby Godsell said the company was in the process of renegotiating these contracts, some of which run for another 15 to 20 years.

Asked whether this was feasible, Hogan told reporters: "You can always negotiate again."

She rubbished reports last week that the company had lost billions by speculating on aluminium prices.

"Embedded derivatives are a big problem... (but) it is completely wrong to say Eskom was hedging on the market. We have already begun discussions with some companies with smelter interests and we will have to renegotiate those contracts."

- Sapa