Electricity levy to rise to cut demand

2015-02-25 14:18 - Donwald Pressly

Cape Town - To stabilise South Africa’s power monopoly, Eskom’s financial position, the entity would apply to its regulator for “cost-reflective” price hikes this year, Finance Minister Nhlanhla told parliament today.

Previous calls from Eskom to increase power tariffs by 16% were thwarted during the public participation process held by the National Energy Regulator of South Africa, but Eskom now faces the ballooning costs of two-much delayed projects – the coal-fired power stations at Kusile and Medupi.  Their costs have rocketed to above R100 billion each and in the case of Kusile nearly R120bn.

Nene also announced an increase in the electricity levy from 3.5c/kWh to 5.5c/kWh “to assist in demand management. He said in his Budget speech that “this additional 2c/kWh will be withdrawn when the electricity shortage is over”.

Hinting that he expected the energy shortage – characterised by load-shedding in recent months across the country – to end next year, he said: “The introduction of a carbon tax in 2016 will provide an additional tool to deal more sustainably with the current electricity shortage, while lowering the electricity levy.”  A draft carbon tax Bill will be introduced later in 2015 “for a further round of public consultation”.

“To ensure that the burden is fairly distributed, steps will be taken to ensure that the electricity levy applies to all users, especially energy-intensive users, while ensuring that there are no double-payments,” he said.

Nene also reported that an increase “is proposed” in the energy-efficiency savings incentive from 45c/kWh to 95c/kWh “together with its extension to cogeneration projects. “

The finance minister noted that he had announced – during the medium term budget policy statement in October last year – that Eskom would be favoured with “a broad package” of support, including a capital injection of R23bn. The other elements of the package involved governance improvements, cost containment of operations and additional borrowing.

He further noted that treasury pledged its support “for required tariff increases”.

He said the R23bn would be paid in two instalments “with the first transfer to be made by June 2015”. If further support was deemed necessary “consideration will be given to an equity conversion of government’s subordinated loan to Eskom”. Nene told a media briefing at parliament that the first tranche would be R10bn in June followed by a R13bn tranche.

A treasury official pointed out that in 2008 government entered into a loan agreement with Eskom for R60bn. The terms of the agreement was that Eskom should pay government interest “provided the entity is financially strong enough”. After 30 years – in 2038 – Eskom was expected to repay the loan. However, Eskom has been able to make no payments of interest in the seven years the loan has been running.

By allowing the state to convert the loan to equity, Eskom was therefore able to convert its debt into equity, which would place it in a better position to garner new loans in the market place, the official pointed out. Lenders tended to look at Eskom’s debt-to-equity ratio “and with less debt… this allows them (Eskom) to look at other loans”, said the official.

The Budget Review reports that the project cost of the Medupi coal-fired power station in Limpopo was now R105bn. This involved “the construction of a 4 800Mw coal plant in the Waterberg region”. It reported that unit 6 was scheduled for commercial operation in the second half of 2015.

The Review also reported that the much-delayed Kusile coal-fired power station in Mpumalanga’s estimated cost has risen to just short of R120bn – a total of R118.5bn. It said Unit 1 of the operation was scheduled to start operating from the second half of 2016.  The Mpumalanga plant ws expected to provide 4 764MW when in full operation.

The original Medupi and Kusile project costs were projected to be under R40bn each.

Eskom’s Sere wind farm at Ceres in the Western Cape, which cost R2.4bn would provide 100MW of wind power. It was reported that the main turbine contract had been awarded and “site establishment” had started.

The Ingula pumped-storage scheme of Eskom in the Drakensburg, which was scheduled to provide Eskom with 1 332MW of pumped storage, was expected to come on stream with the first unit in the second half of 2015.

The Budget Review reported that appropriations would be made to Eskom as funds from the disposal of non-core assets were realised, “ensuring that there is no increase in government debt and no effect on the fiscal position”. The budget review provided no specifics about the sale of non-core assets.

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