Eskom 'must sell three plants'

Johannesburg - South African utility Eskom could raise as much as R100bn from the sale of three of its power plants, easing the need for steep power price hikes seen curbing growth, critics argued on Friday.

Eskom, which provides 95 percent of the country's power, has to foot a R385bn bill to build more power stations to cope with rising demand and prevent a power crisis, but has no cash at hand.

Eskom's request to raise prices by 35 percent a year for three years will weigh on an economy trying to recover from its first recession in nearly two decades. Critics say up to 500 000 jobs could be lost if the price hikes go ahead.

Consumers want Eskom to find alternatives, including more government help, borrowing or the sale of its existing power stations to boost its balance sheet.

"The sale of three (existing) generation plants could raise R100bn," James Hodge, a partner at consultancy Genesis Analytics was quoted as saying by Engineering News online.

Eskom has said it wants to sell a stake in its planned Kusile power station, but critics say the offer of a non-controlling stake in a plant yet to be built is unlikely to attract investors.

In early 2008, Africa's biggest economy suffered blackouts that crippled mines in the world's top platinum and major gold producer, highlighting the urgency to find new capacity.

No support

Eskom has won no support for higher prices to fund the expansion from the 300 submissions to the National Energy Regulator of South Africa (Nersa), which is holding public hearings on the request.

"If the 35 percent increase is accepted by Nersa, we can wave goodbye to an immediate recovery for South Africa's economy," said Jerry Vilakazi, CEO of Business Unity, which represents South Africa's biggest companies.

Gold producers say steep power price hikes would erode profit margins, while ferrochrome smelters fear rising costs may force them to cut output.

A public outcry last year forced Eskom to cut its initial request for a 45 percent rise each year for three years.

Nersa will decide on the Eskom request on February 24.

Gold producer AngloGold Ashanti commissioned the Genesis study which found a price hike of 25 percent annually over the next three years would guarantee Eskom the income it needed without a major shock to the economy.

The study also proposed more debt and independent power producers (IPPs) to provide a major part of the needed supply.

IPPs have long insisted they could play a significant role in supplying power, but their efforts have been hampered by regulatory bottlenecks and the lack of power purchase deals.

A proposal from Rand Merchant Bank called for the formation of a transparent power market listed on the Johannesburg Stock Exchange, with tariffs linked to the price of coal.

Standard & Poor's said the likelihood of the state granting Eskom additional support was also "extremely high".

- Reuters