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Why Eskom wants 16% price hike

Oct 22 2012 16:05
Johannesburg - Eskom has asked for a 16% increase in electricity prices each year for the next five years, the parastatal said on Monday.

"We seek to ensure that Eskom can cover the costs of supplying the electricity needed to power South Africa and invest in the future," CEO Brian Dames said in Johannesburg.

This would take the price of electricity from 61 cents a kilowatt hour in 2012/13 to 128 cents a kWh in 2017/18 - a more than 50% increase over five years.

The 16% increase was broken down into a 13% increase for Eskom's own needs and 3% for the introduction of Independent Power Producers (IPPs).

The IPPs would be responsible for the first large scale introduction of renewable energy into South Africa.

Electricity had been charged at below reflective costs and this was not sustainable.

"Our application balances South Africa's needs for a secure supply of power and for a sustainable electricity industry, with our recognition of the impact which tariff increases have on the economy, particularly on the poor," Dames said.

Eskom submitted its application for the increases to the National Energy Regulator of SA (Nersa) on Friday.

The current Multi-Year Price Determination, MYPD2, ends on March 31, 2013.

Nersa will announce its final decision in February, following an extended period of consultation and public hearings.

"This is the start of a process. This is not a decision. A decision will be made by the regulator," Dames said.

The application proposed a price-path which migrated electricity prices towards a level where they covered the full cost of producing electricity.

This would include operating costs, such as coal, maintenance and employees, and the cost of servicing the debt raised to finance Eskom's new build programme of R337bn over the five years.

Dames said coal made up 56% of Eskom's primary energy costs.

The price of coal had been increasing far above inflation due to ageing mines and growing competition for South Africa coal.

Dames called for a country pact to contain coal cost increases to no more than 10% a year.

Eskom's application proposed a tariff structure to cross-subsidise poor households that used little electricity. In terms of this, these households would get single digit price increases.

Dames said the parastatal would apply to Nersa this week to review a special pricing agreement it was tied into with Australian miner BHP Billiton for its aluminium smelters in KwaZulu-Natal.

"The special pricing agreements link the price the smelters pay for electricity to the dollar price of aluminium and were entered into in the 1990s when Eskom had surplus generating capacity, which is no longer the case."

As the terms of the deal are secret, it is not known how much BHP Billiton pays for electricity, but it is estimated to be below cost.

In contrast to the MYPD 1 and MYPD 2, which both spanned three years, Eskom was now proposing a five-year determination for MYPD 3 to ensure a predictable, longer-term price path.

The Democratic Alliance objected to the price increases.

"I will meet with the regulator, Thembani Bukula, this week to urge Nersa not to accept Eskom's proposals," said DA MP David Ross in a statement.

"We will continue our calls for an alternative pricing model in which consumers and businesses are not made to pay for inefficient capital expenditure programmes by a monopolistic state-owned energy provider."


eskom  |  brian dames  |  electricity costs


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