Lower rates will hit Eskom hard

Johannesburg - Eskom says it will have to cut spending on its expansion programme for the next five years by R136bn, because of insufficient turnover.

Eskom expects its turnover for these five years to be R142bn less because it lowered its tariff increase application to only 35% per year for three years, instead of the original 45%.

The National Electricity Regulator of South Africa (Nersa) is currently holding countrywide hearings to receive comments from interested parties about the proposed increases.

Eskom acting CEO and acting chairperson Mpho Makwana said Eskom will also have to save an additional R12bn in general costs over the next three years to keep up with the capital programme in its present form.

"As part of this, we are planning to cut our operating costs by R6.9bn over the next three years; we feel we will save R3.4bn in energy costs thanks to energy saving, which must become a priority in South Africa."

He said that even if Nersa approves Eskom's application for a 35% increase per year, the electricity supplier still expects a financing deficit of R14bn and R8bn in 2011-12 and 2012-13 respectively, despite all the initiatives being planned by the company.

"We will have to make up these shortfalls elsewhere," said Makwana.

However, Eskom's concerns aren't receiving much sympathy from the company's critics. No party attending the hearings so far has supported the 35% increase.

Trade union Solidarity said the best Eskom can hope for is increases of 20% per year.

"But it is important, in addition to the higher rates, for the government to give Eskom a further R20bn per year over the next six years. Otherwise the building programme can't continue as it must," Solidarity deputy head Dirk Hermann said yesterday.

Hermann said a rise of 25% rather than 35% would mean that Eskom will have to cut its capital programme over the next five years by a further R100bn to R150bn. "But we don't feel the capital budget can be cut any further. That's why the government will simply have to provide addition share capital over this period."

The South African Chamber of Commerce and Industry (Sacci) also mentioned a 20% hike in its submission to Nersa. Sacci said that while an increase of 20% could result in the loss of 223 000 jobs, it was still better than the nearly 430 000 to be expected if electricity rates were to rise by 35%.

Cosatu spokesperson Patrick Craven said that rather than rate increases, the government should increase tax to help to pay for Eskom's capital programme.

Cosatu said earlier it was prepared to negotiate with Eskom over rate increases of less than 15% per year.

- Sake24.com

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