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Eskom: CPI related tariff hike will ruin us

Nov 20 2017 19:09
Yolandi Groenewald

Johannesburg - Eskom executives made a final plea on Monday as the National Energy Regulator of South Africa (Nersa) concluded its hearings on whether the state utility should be granted a steep tariff hike.

It did not back down from its original request of a 19.9% increase, despite a flood of opposition at the hearings.

Acting finance chief Calib Cassim said a tariff hike in line with the consumer price index (CPI), as requested by countless organisations, simply was not sustainable and that Eskom needed the 19.9% to stay afloat.

“Eskom is not financially sustainable with a CPI price increase as this would imply an average price increase of 4%," he said.

But Cassim said Eskom would reduce its workforce with 4 454 in the next year as part of its cost cutting measures.

Not business as usual

A general manager at Arcelor Mittal, Richard Halcroft, lashed out at Eskom, saying it could not be business as usual.

“How is Eskom’s labour bill sustainable,” he asked, adding that Arcelor Mittal had zero salary increases because of the current hard times.

He said the company's plants could shut down if the hike was granted, leading to massive job losses. Aggressive cost cutting at the state utility was the only answer, he believed

The National Union of Metalworkers of South Africa (Numsa) said it viewed Eskom's request as nothing more than a gross abuse of power, and an attempt by the state owned entity to hold the entire country and the economy hostage.

The trade union’s Sharon Modiba said Eskom’s “audacity” was an attack on the working class and that the executives' huge salaries were contributing to this. 

She said careful consideration should be given before any workers are retrenched at Eskom.

Numsa spokesperson Phakamile Hlubi added that Eskom had no regard for the catastrophic implications of this and for the national crisis of plant closures which would be triggered if this “outrageous” demand is met.

“The board and management of Eskom seem completely oblivious to the suffering of the working class majority,” she said.

Death Spiral

CEO of the Energy Intensive Users Group, Xolani Mbanga, said the 19.9% hike would result in a death spiral, where sales plummet because electricity prices are constantly increasing. This cycle ultimately spirals out of control, because Eskom keeps hiking prices to make up revenue, leading to more and more people buying less electricity. 

Mbanga also called for a CPI related increase.

Commenting on the death spiral, Deon Conradie, senior manager of electricity pricing at Eskom, said research within the power utility showed that the price of electricity was not the main reason for Eskom’s drop in sales and revenue.

He warned that the "utility financial death spiral" for Eskom should not be artificially created through subsidies or through price premiums.

Conradie said indications were that Eskom’s current average price was well below the cost of substitutes and alternatives, but added that  municipalities' "surcharges", could breach that level.

He said customers more able to afford own generation could defect off-grid faster. Even if due to artificial price signals, once off-grid it is likely to remain off-grid.

Cassim concluded the presentations once again by saying that South Africans would ultimately have to choose between a bailout and the tariff hike if it wanted to power utility to survive the coming storm.

He cited last week’s global ratings agency Fitch’s report, which placed Eskom on Rating Watch Negative. Cassim said Fitch’s comments showed that previous lower tariff hikes had affected Eskom’s liquidity and that this year’s price decision was critical.

A final ruling is expected on December 7.


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nersa  |  arcelor mittal  |  eskom  |  numsa  |  electricity  |  sa economy  |  tariff hikes
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