Eskom yields jump as court seeks SA power-price review

Cape Town - Eskom’s bond yields climbed the most in more than two months after a South African court told the energy regulator to review its decision to allow the utility to recoup unforeseen expenses through higher electricity tariffs.

A group of companies in Port Elizabeth alleged it was unlawful for the National Energy Regulator of South Africa to give Eskom permission to get back expenses it hadn’t budgeted for in fiscal 2014 by raising tariffs an average 9.4% in April instead of the more than 8% initially allowed.

Those corporate customers, including light-alloy wheelmaker Borbet SA’s local unit, said the utility should have provided more regular updates on its financial situation, Eskom spokesperson Khulu Phasiwe said.

The North Gauteng High Court on Tuesday said judging price applications isn’t part of its competency and sent the decision back to the regulator, said Phasiwe, adding that Eskom is studying the ruling.

Nersa is also “studying and analysing" the ruling, before communicating its position, the regulator said in an e-mail.

The ruling “introduces further uncertainty into the process of determining electricity tariff increases,” Rand Merchant Bank analyst Elena Ilkova  said by e-mail. The decision “will have an impact on pending tariff applications by Eskom,” she said.

The utility had planned to submit an application to recover costs for fiscal 2015 and 2016 by the end of July, totaling about R41bn.

Yields increase

Yields on the utility’s dollar bonds due February 2025 jumped 26 basis points to 6.34%, heading for the biggest increase since June 24.

Eskom had to buy diesel to run costly emergency turbines in 2014 and 2015 to curb regular power cuts in the continent’s largest economy. Power prices in South Africa have almost quadrupled since 2007, when the country first had shortages that resulted in scheduled cuts known as load-shedding.

Eskom has stabilised the performance of its plants and rolled out a cost-cutting programme that saved R17.5bn in the year ended March 31, about a third more than targeted. The producer had wanted to increase prices by 18% in the year that started April 1.