South Africa

Nersa hearings: Eskom insists on 16% price hike

By Erin McLuckie 4 February 2013

After taking intense flak throughout the three-day Johannesburg leg of the National Energy Regulator of South Africa’s public hearings on the power utility’s proposed price increases, Eskom presented its case for hiking electricity tariff hikes. And the parastatal used the opportunity to deliver a depressing prognosis for the future of South Africa, should a 16% increase for the next five years not be approved. By ERIN MCLUCKIE.

The general consensus of the presenters opposing Eskom’s proposed increase has been that such an increase will fuel job losses and destabilise the economy.  As the last day of the National Energy Regulator of South Africa’s (Nersa) public hearings on Eskom’s proposed price increase drew to a close, it was evident that the hype around the hearing had died down. On day three of the hearing there was no Cosatu presence and many presenters scheduled to contribute were simply not available.

Tourism Business Council of South Africa CEO Mmatsatsi Ramawela explained that tourism in South Africa was currently battling to maintain a competitive edge, and such an increase would force many companies in the tourism industry to shut their doors.

“We believe that there is a lot of money in government that is not being utilized correctly. For this reason we maintain that there should not be an increase at all,” Ramawela said. She said the increase in unemployment such a price hike will cause, will lead to directly to increased crime rates, which will, in turn, further destabilise the tourism industry.

Free Market Foundation director Eustace Davie told the Nersa panel that competition in the energy supplier market is a necessity for a healthy, growing economy. “If we are to combat such extreme price increases we need to open the transmission grid as quickly as possible, where independent power producers should be allowed to have access,” Davie said.

Opening the transmission grid would allow manufacturers to sell generated power into the grid at a competitive cost, ensuring that both the end user and the seller get a fair price. “Accessibility to the grid is in question, with currently only one supplier – Anglo American – having successfully applied for access to the transmission grid at a high cost paid to Eskom,” Davie said.

Paul O’ Flaherty, Eskom’s chief financial officer, defended the power utitlity’s need for the increase explaining that if it were to reduce the proposal by even 1%, this would mean Eskom would be required to find an additional R25 billion – a difficult feat with Eskom’s debt ceiling. Explaining Eskom’s financial requirements in terms of maintaining operating costs as well as future projects, O’ Flaherty said, “The cash Eskom requires is R1.28 trillion rand over the next five years.”

These terrifying figures paint an ominous picture for the energy sector and its consumers in South Africa. Another concern is that Eskom has committed to saving R30 billion, but has yet to plan how such a feat will be achieved. “We have committed to a R30 billion saving, but don’t have a plan yet. We are still identifying areas of savings,” O’ Flaherty said. Such talk has left many questioning whether Eskom will be able to honour such a commitment, and if not, what the cost implications will be for South African consumers.

Eskom thanked presenters for constructive ideas, promising to follow up these proposals. However, the parastatal did caution that many of the proposals and issues raised throughout the hearing related to policy issues over which Eskom had no jurisdiction. Recommendations for changes in policy structure needed to be directed at government level. The Department of Energy, ironically, did not make an appearance at the hearings.

A contradictory problem that South Africa and Eskom currently face is that of the projected energy consumption calculated by Eskom. Throughout the hearing it was argued that the implementation of the proposal would lead to the closure of numerous companies and, consequently, job losses. However, with such mass shut downs and job losses, the projected energy consumption for the next five years would actually be less than Eskom’s calculation due to these losses in the economy. This would mean that there would be less consumption at a higher cost.

Nersa is expected to announce a decision on Eskom’s proposed price increases on 28 February. DM

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