DA to meet Nersa over 'errors'

Johannesburg - The Democratic Alliance will meet the on Friday over the approved Eskom's tariff hikes, the party said on Sunday.

"The meeting is over what appears to be significant problems in the adjudication of Eskom's tariff application.

"After reviewing the nature of the proposals put forward by the National Energy Regulator in detail, and consulting with industry insiders, we believe that three major flaws existed," said DA spokesperson David Ross in a statement.

He said the problems suggested that the entire tariff increase might be flawed in overstating Eskom's expenses, in order to legitimise a larger tariff increase.

"Firstly, in its application, Eskom's stated primary energy costs include a once off portion of some R7.5bn to rebuild stockpiles. Nersa has included this as a basis to escalate the allowances for increases in the tariff.

"This, we believe, transgresses basic accounting rules and shows lack of basic understanding by all involved. Does this mean that new stockpiles will arise all over the show, or will this cash be ferreted away as well?"

Ross said the R 7.5bn involved past expenditure to rebuild stock to a specific level - that level of expenditure would not be needed since the stock will only need to be filled up at the margin as time goes by.

"If it costs R2 000 to fill a swimming pool with water initially, then one cannot claim that you spend that amount each year to keep it at its present level. This means that their cost estimate seems overstated."

Secondly, Ross said, Eskom's stated operating costs include a sum of R9.5bn, which was a once off provision for the aluminum hedge, and was included in Nersa's base calculations to escalate further tariff increases. He said this did not make sense.

"Does Eskom intend to keep on speculating in the aluminum market?"

Accounting misstep

The aluminum hedge was used in order to limit Eskom's risk at the time they needed to buy the aluminum for capital expansion, Ross said.

"By including that expense for the next year, they will continue with the level of capital expansion. Once again, this apparent accounting misstep would appear to significantly overestimate their costs for the coming year."

The allegations of mismanagement, wastage and failure in critical areas, as highlighted in the Susan Olsen report had been totally ignored, Ross listed that as the third problem.

"If the recommendation and warnings of the report are not integrated into future Eskom changes to management, then it assumes that the coal-management unit will again face huge losses due to mismanagement which Susan Olsen flagged over two years ago."

Ross said all of this implied that Eskom's costs had been overstated in its application before Nersa.

Nersa announced last month that it was granting the power utility a 24.8% tariff increase for 2010, 25.8% for 2011, and 25.9% for 2012.

- Sapa