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Tariff hikes not the solution for Eskom, Nersa hears

Apr 17 2018 14:08
Carin Smith

Cape Town – Eskom’s liquidity issues can be more adequately resolved by addressing non-payment among users and by implementing the major cost cutting needed at the state-owned power utility.

This was the view expressed by Leslie Rencontre, director of electricity distribution and generation at the City of Cape Town to the National Energy Regulator of SA (Nersa) on Tuesday.

Nersa is holding public hearings in Cape Town regarding Eskom’s application for claw-back tariffs amounting to R66.6bn.

Rencontre said there is a contradiction between Eskom’s primary energy costs and its sales. He pointed out that the more Eskom increases electricity prices, the more consumers will compensate by using less.
“A reduction in electricity sales leads to a reduction in revenue and this is one of the main reasons for Eskom’s claw-back application,” said Rencontre.
“Prudent generation is not particularly dealt with by Eskom and highlights the failure in its central model.”

The view of the City of Cape Town is that granting Eskom the R66.6bn it is applying for will not be affordable for the SA economy. Rencontre said this will just accelerate a decline in electricity sales – in line with international trends – where newer technology starts to expand.

Furthermore, the City expects the impact of granting Eskom its claw-back application, would reduce the turnaround in the mining industry and industrial sectors.

“Eskom’s sales projections seem to always be out of sync with reality. The significant decline in electricity sales cannot be corrected just in one year,” said Rencontre.

“The City of Cape Town does not support a R66bn increase in revenue for Eskom.”

He added that internationally companies which own power generation plants that cannot compete on price close them down as they become unprofitable. These large energy companies also sometimes split their companies into a company with good assets and one with “bad assets” so that the entire company does not do badly.

“In Eskom’s case, there are some arguments for it closing down some older plants which will decrease operating costs as well. Eskom’s board has a mandate to look at a reduction in operating costs which could be created,” said Rencontre.

Regarding the issue of non-payment to Eskom, especially by some municipalities, Rencontre said the increased tariffs will just be passed on to consumers who can already not afford the current level of pricing and so putting even further stress on municipalities regarding payments owed to Eskom.

“In the view of the City, Nersa needs to be sure that the disparity between Eskom’s increase in primary energy costs and the decrease in its sales is set out properly and there is efficient utilisation of its plants and not inefficient operations or costs in generation plants,” he argued.

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