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Time for Nersa to own up on Eskom

Cape Town – Eskom has drawn increasing fire in recent months for the country’s energy crisis, yet the role of the National Energy Regulator of South Africa (Nersa) has been overlooked.

A Fin24 user working in the energy industry believes Nersa should shoulder some of the blame and use its authority to resolve certain aspects of the crisis.

The Fin24 user, who asked to remain anonymous, wrote:

It needs to be remembered that Eskom is not only dealing with a shortfall of generation capacity, but also has a major financial crisis. The scale of the financial shortfall is almost too large to comprehend.

Eskom needs R3bn to cover diesel costs and an immediate cash flow shortfall of R50bn. For the period ending in March 2018 the shortfall is estimated to be R225bn.

Numbers like these do not come about because of poor management or improper financial controls on the part of managers or staff in an organisation. These kinds of numbers point to a much bigger reason.

One has to look at how electricity supply is managed and regulated in South Africa.  Eskom and all the municipalities operate under the rules and regulations of Nersa. This includes the prices that can be charged for electricity.

Any business that charges less for a product than what it pays to make or buy it is going to run into financial trouble. There is no getting around this fact.

Nersa bowed to popular pressure

In 2012, Eskom made an application to Nersa for yearly increases in tariffs of 16% per year (they originally wanted 24%) for the period 2014 to 2018.  This was very unpopular with business, the public and trade unions following large average increases of 27% from 2008 to 2012.

In justifying an increase that was half of Eskom’s stated requirement, Nersa claimed it made the decision taking consideration of the global recession and South Africa’s struggle to meet economic goals set out in the national development plan (NDP).

In reality, Nersa bowed to popular pressure at the time to contain prices. The catch in all this is that without adequate electricity supply, all prospects of economic growth are significantly dimmed, especially because we are very dependent on energy-intensive industries in South Africa. We can see the effects on our economy of inadequate investment already. South Africa’s economic growth is regularly described as anaemic.

Failure to invest in electrical infrastructure has huge knock-on effects for every other industry in the country. Investment is not possible without adequate income to support the expected future demand. Simply put, more expensive electricity is much better than no electricity.

The current funding crisis in Eskom has potential long-term consequences for all of us. Projects are halted or delayed, maintenance cannot be done, new connections that will support developments, commerce and industry will not be made.  

This makes the funding problem at Eskom a problem for all of us. A failure to deal with it could set off a chain of events that will drag the country’s electricity problems well beyond the three years it will take to bring enough new generation on line at Medupi and Kusile.  

‘Penny wise, pound foolish’

We could be dealing with problems in electricity supply that cripples economic growth well into the next decade.

There is an Afrikaans idiom “Goedkoop is duur koop”, which simply means that when you buy cheaply in the long run you end up paying more. Let us not pay more down the line than we need to today.

Electricity generation is only the first part of the electricity chain (albeit a very important one).

Failure to adequately fund the entire electricity chain could mean that today we don’t have generation and tomorrow we can’t get power to our businesses and homes. All of this because we didn’t spend enough money and time on maintaining existing  power lines or building new ones.

The price we pay for electricity is an important part of making sure we have electricity and the final decision-making lies in the hands of Nersa.

Eskom and government have both put up their hands and acknowledged mistakes, past and present. The missing piece of this triangle is the role Nersa plays and they have been very quiet as all of this unfolds.

* What do you think should be done to ensure the future supply of sustainable electricity in South Africa? Tell us now.

Disclaimer: All articles and letters published on MyFin24 have been independently written by members of the Fin24 community. The views of users published on Fin24 are therefore their own and do not necessarily represent those of Fin24.

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