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Eskom not ignoring governance issues - acting CFO

Oct 31 2017 17:52
Carin Smith

Cape Town – Eskom is not ignoring governance issues which need to be addressed, but investigations into these have to be allowed to unfold first, Calib Cassim, Eskom's acting chief financial officer, told the National Energy Regulator (Nersa) on Tuesday.

Nersa kicked off its public hearings on Eskom's application for a tariff hike in Cape Town on Monday. Eskom has applied to increase its electricity tariffs by an average of 19.9% for the 2018/19 year.

"Governance is important to us at Eskom. We have seen the reaction it caused among lenders and ratings agencies and it is in our interest to resolve the issues around governance as soon as possible," he said at the close of the hearings in Cape Town.

"There are also issues being dealt with at government level - like the parliamentary inquiry. We are, therefore, not ignoring these governance issues. We want to highlight that these issues are critical, but it is a process and we have to wait for the findings to unfold and then move forward from that."

He said Eskom welcomed all the inputs presented during the Nersa hearings so far. He explained that, in its tariff increase application, Eskom made assumptions based on efficient costs for this particular revenue application.

"As an SOE Eskom has to play a developmental role, but also be run as a company. We need to balance various roles, but at the end of the day we have to demonstrate Eskom's efficiency to limit the impact on the price of electricity and to be in a position to raise the debt required and not to be a burden to the state," said Cassim.

"Macro-economic studies undertaken by Eskom show that it would be worse if appropriate tariff increases for efficient costs were not recovered. It would result in further debt that needs to be supported by government."

Cassim said those customers who can afford to pay for electricity should be charged an appropriate price and municipalities must be enabled to recover their costs.

"In restructuring the industry we need to look at protecting municipalities that cannot afford to cross subsidise (electricity). If you cannot recover an efficient cost, macro-economic studies we did show you won't be sustainable in the long term," said Cassim.

He said Nersa must take these factors into consideration when making a decision on Eskom's tariff hike application.

Power stations

Willy Majolo, Eskom's acting group executive for generation, told the Nersa panel that the current application for a tariff hike is for one year, and the power utility was not planning to decommission any power stations or units during that period.

"We are having seasonal excess capacity and as a result we do switch off machines to manage the balance between supply and demand. However, if for any reason the excess disappears, we are in a position to switch back those machines - it is almost like a reserve bench in a soccer team," explained Majolo.

He said the same goes for having a back-up for renewables - for instance if there is a cloud cover in the Northern Cape for three weeks.

"We are saying that, for now, let us not act too quickly regarding the decommissioning of these power plants. If we need them, they will be there, but there are also cost savings as they have been placed in cold reserve," said Majolo.

Municipalities

Leslie Rencontre of the City of Cape Town's electricity services department told the Nersa panel that, regarding electricity tariffs, the fundamental issue is that there have been attempts to protect poorer households by passing through lower tariff increases to them.

However, this has now led to a situation where, in some municipalities, the price some households are being charged is lower than the cost of the electricity to the municipality. This in turn creates an unsustainable situation where that municipality then has to recover the shortfall from other consumers.

The situation is aggravated in the current weak economic environment where a significant - and growing - number of households acquire assistance. He also added that as electricity prices increase, it leads to an increase in electricity theft, which needs to be addressed.

The public hearings are set to take place in all nine provinces, ending in Gauteng on November 16. 

Nersa hopes to announce a decision in early December. 

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nersa  |  city of cape town  |  eskom  |  tariff hikes  |  energy
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