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Eskom can save R26bn on its tariff hike application - Salga

Oct 30 2017 12:03
Carin Smith

Cape Town – Eskom has shown in the past five years that it certainly can tighten its belt if the National Energy Regulator (Nersa) demands it, according to Nhlanhla Ngidi, who advises the South African Local Government Association (Salga) on energy.

Ngidi was speaking on the first day of Nersa’s public hearing in Cape Town on Monday, regarding Eskom's application for a 19.9% tariff hike for the 2018/19 year.

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.

READ: Don’t judge Eskom on ‘mistakes of a few’ in tariff application – acting CEO

“We cannot take double-digit tariff increases right now (and) until the economy picks up and the culture of non-payment by electricity users to municipalities has been addressed,” said Ngidi.

“Eskom needs to restructure itself to become more resilient to a fast-changing energy sector and to take on board the transition that is happening globally.”

According to Salga, there Eskom “cut” about R26bn from its tariff hike proposal.

“Eskom is good at building its case (for tariff hikes). It has the resources to be able to mesmerise us with their (tariff hike) case.

"In the past, we gave them half of what they asked for, and look, they are still standing today,” Ngidi said.

“We understand that Eskom cannot make everyone happy all the time, but Salga rejects the 27.29% price shock effect (Eskom’s application will have) on the market as unaffordable and indefensible. Nersa must not allow Eskom inefficiencies to be passed on to the consumer.”

In the view of Salga, there are seveal savings possible for Eskom. However, Ngidi repeatedly emphasised that Nersa is ultimately the experts to determine the validity of Eskom’s application and Salga’s counter-arguments.

“We still support the long term approach of pricing as it allows everyone to adjust to the (tariff increase) shock,” said Ndigi.

Salga’s objections include that it is of the opinion that Eskom’s IPP forecasting is unrealistic and making projections on projects that will not come online in another two years or so – and this while Eskom’s application is just for one year.

IN DEPTH: Why Eskom is asking for a 19.9% tariff hike

Salga also argued that over half of the tariff increase asked for is based on sales forecasts, yet Eskom has acknowledged that sales are dropping as is the case throughout the industry, including from municipalities.

“Every time there is an electricity price increase by Eskom it costs the country more to subsidise the poor,” argued Ngidi.

Salga also argued that it seems customers are paying Eskom twice - once in the form of the environmental levy and secondly for Eskom’s tariffs for renewables.

Another argument of Salga is that it is not necessary for Eskom to recapitalise its transmission capacity to such an extent during the current period where it says it has over 7GW over-capacity until 2022.

Salga also wondered whether there are no innovative and efficient ways for Eskom to deal with the costs of running its business.

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