Johannesburg - While Eskom is expected to announce a huge financial loss on Thursday, an expert said the power utility has to at least double its electricity prices to remain viable.
"It's going to be bad," said independent energy consultant and industry expert Andrew Kenny on the eve of the release of Eskom's results for the year to end-March. "Eskom has had to pay more for everything, especially coal."
Kenny said what makes Eskom's coal even more expensive was that it ran down its coal stockpiles last year, which forced the parastatal to buy its single biggest input on short-term delivery contracts. Short-term delivery contracts can cost up to three times more than long-term delivery ones.
In the year to March 2008 Eskom reported a R974m net profit, as opposed to R6.4bn the previous year.
A more pressing issue should be the funding Eskom needs for its new infrastructure investment programme. The government has already offered the company R60bn in loans. However, Eskom must raise the rest of the R385bn budgeted investment expenditure over the next 10 years from the markets and through electricity tariff increases.
It has previously been reported Eskom would have a funding shortfall of about R27bn in the present financial year. National Energy Regulator of SA's (Nersa's) Thembani Bukula estimated earlier in 2009 that Eskom would need to raise tariffs by 90% to meet its funding requirements; it was eventually allowed to lift prices by 30.3%.
Kenny concurred: "Eskom must at least double electricity prices if it is to be viable. I would support such a high tariff increase, although it is painful."
In the results presentation, Eskom CEO Jacob Maroga can also expect to field questions on the organisation's intentions with private electricity producers, which it has said in the past would generate about 30% of its power.
Private producer frustrations
However, a few private generators have recently expressed their frustrations with Eskom's inability to conclude power purchase agreements.
"I don't expect them (Eskom) to make an announcement on that since there's no government policy in place to regulate that right now," said Kenny.
He added the policy must be "sorted out soon" if the country is to prevent the electricity crisis of 2008. "The slower economy has offered Eskom a break to sort out things in the short term."
At least two energy producers, CIC Energy and Ipsa, have publicly lambasted Eskom for its indecision on power purchase agreements in recent months. AltX-listed and AIM-traded Ipsa went so far as to say that Eskom would cost the company its survival if it did not start buying its power from Ipsa's Newcastle plant.
CIC Energy is developing the Mamabula power station in Botswana, but has also accused Eskom of dragging its feet on the power purchase agreement.
"We have built a [100MW] power plant and it is not working, thanks to Eskom," Ipsa CEO Peter Earl told Fin24.com. He said his company has reserved capacity especially for Eskom since January, in terms of a medium-power purchase tender Eskom advertised.
"If we sold our electricity to anybody else we would have nullified our bid; the tender rules prevent us from selling the power to anybody else," said Earl. "It has wasted a year. That's why we are angry."
He said Eskom must sign the purchase agreement Ipsa won in terms of the tender. "We are the only ones that have actually incurred costs building a power station."
- Fin24.com