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Cape Town – Nersa chairperson Jacob Modise on Monday accused Eskom of harming the economy by selfishly focusing on its own interests.
He challenged Eskom to explain why it could not find more cost-saving measures, such as mothballing ageing coal power stations that are not required amid an electricity supply surplus.
Modise’s challenge came on the first day of energy regulator Nersa’s public hearings into Eskom’s application for a 19.9% tariff increase in 2018/19.
Eskom wants its allowable revenue to increase to R219.5bn, up from the allowable revenue of R205.5bn which Nersa maintained for the 2017/18 year.
With debt costs increasing and National Treasury drawing a line in the sand on further bailouts, Eskom believes the consumer has a role to play in keeping the power utility operational.
The problem is that Eskom’s integrity has been shot as a result of new power plant construction delays and overspending, load shedding and allegations of corruption.
On top of that, there has been a 400% electricity price increase over the last 10 years, according to energy policy expert Professor Anton Eberhard, who gave the estimate during Parliament’s Eskom inquiry this month. “This has had a serious impact on the economy,” he said.
What about mothballing coal power plants?
Modise asked why Eskom was only looking at its turnover and declining sales, and not thinking about mothballing coal power stations amid the power surplus. “If you had closed down a few power plants, wouldn’t the economy improve?” he asked.
“As a monopoly, you are selfishly looking at your own balance sheet,” he said.
Modise is concerned that Eskom will push big businesses and wealthier households to leave the electricity grid and invest in their own electricity generation unit, such as solar or gas.
This would burden the poorer customers, who would then receive increased electricity costs because of Eskom’s need for revenue from customers, said Modise.
However, Eskom acting CEO Sean Maritz warned that such a measure could have a deadly impact on small towns, whose economies are driven by the coal mines and power stations in question.
Modise said Maritz’s argument implied that they should protect the jobs of these small towns over the entire industries of mining and agriculture, which would shut down as a result of high electricity prices.
“You would have the entire mining and agricultural industries shut down their businesses just because you are selfishly looking at your tiny contribution to the economy,” he said.
Maritz responded: “We never do something selfishly. We do what is expected of us by the shareholder contract.”
He argued that South Africa still has the cheapest electricity for the industrial sector.
Nersa chairperson Jacob Modise (left) and Nersa head of electricity Mbulelo Ncetezo in Cape Town on Monday. (Photo: Matthew le Cordeur).
Eskom needs its paying customers
Maritz said it was not just load shedding that caused power price increases.
“It is not fair to only blame Eskom for the economic slump,” he said. “We need to be realistic (on) how to sustain total economic performance in country.”
Eskom acting chief financial officer Calib Cassim said the company is cognisant of the impact the electricity price has on consumers.
“At the end of the day, we have R360bn in debt and R50bn is raised per year,” he said. “A major part of this is guaranteed, so if Eskom defaults, National Treasury needs to resolve that.”
Eskom is the benefactor of the government’s largest state guarantee of R350bn, which supports its capital investment programme.
“We have heard that National Treasury is not in a position to bail out Eskom,” he said. “That’s the position we are in. Eskom, the regulator and the consumer will have to deal with it.”
Treasury says Eskom needs its tariff increase
In its mini budget review, Treasury argued that Eskom needs its tariff hike, because it would no longer be able to bail it out by using its guarantees.
In his mini budget speech, Finance Minister Malusi Gigaba said Eskom has become too much of a risk with the government almost reaching its expenditure ceiling, and that one more mess-up at the utility would be too much for another bailout.
Eskom, he said, has to be assisted to create its own revenue stream and not depend on government guarantees. “As government is guarantor over a significant portion of Eskom’s debt, it has become a significant risk to the entire economy,” he said.
Granting the tariff hike would represent a step-change in Eskom’s future revenues, Treasury said in the mini budget. “Combined with strong cost management, this could allow the utility to cover all its obligations without fiscal support.”
One thing is for certain. Government does not want Eskom to fail.
“Eskom is simply too important to the country to fail, and we will not allow it to,” Gigaba said.
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