Electricity price goes up — way beyond inflation — as Ramaphosa answers questions on Eskom in the House
As President Cyril Ramaphosa answered questions on the Eskom crisis in the House, the energy regulator announced an electricity price hike of at least 9.41% from 1 April — well above inflation. For consumers picking up the Eskom tab, this would be followed by an increase of 8.1% in 2020 and 5.2% in 2021. Nice presidential words on government action to solve the Eskom crisis do not soften the pain.
The electricity price increase is complicated. The 9.41% increase from April 2019, as announced on Thursday, is in addition to the 4.4% tariff increase the National Energy Regulator of South Africa (Nersa) approved in October 2018 for Eskom to recover unforeseen costs going back to 2014.
Both increases kick in on 1 April, meaning the effective electricity price rise is 13.8%. The way the electricity pricing works is that Nersa is allowing Eskom to recover R3.869-billion through the regulatory clearing account (RCA) for 2018 — and has approved Eskom collecting R206.38-billion for the 2019/20 financial year through an annual percentage increase of 9.41% from 1 April 2019.
But this is unlikely to be the final electricity price increase. As councils raise much of their own revenue through electricity tariffs, municipalities will impose their increases from the new municipal financial year, starting 1 July.
Nersa chairperson Jacob Modise, in announcing the electricity tariff decisions on Thursday, said the regulator may decide to hold its own probe into governance failures at Eskom.
And, according to a statement by Modise, the regulator “may effect adjustments to Eskom’s revenue based on the relevant outcome of its investigation” and those undertaken by National Treasury, the Special Investigating Unit, the Hawks, Parliament, “or any commission of inquiry as and when they are concluded or a conclusive outcome is reached and the costs associated therewith have been quantified”.
Nersa and Eskom have bumped heads over the electricity price determination in the past. The power utility has received above-inflation price increases over the past decade — or some 350% between 2007 and 2017, according to widely accepted calculations — but still below what the power utility had had demanded.
In Parliament, President Cyril Ramaphosa faced comments and questions about the electricity price increase from the opposition benches but did not respond directly.
His responses acknowledged the Eskom crisis and outlined what had already been said in his February State of the Nation Address and the subsequent Budget — Eskom’s unbundling without retrenchments and privatisation. Ramaphosa also explained that it was no longer feasible for money to be thrown at the power utility.
The “severe challenges” at Eskom were not caused by the independent power producers programme (IPP) or the private renewable energy projects’ selling power into the Eskom national grid, as costs had come down and were offset by private investment estimated at R202-billion in the renewable energy sector.
“Eskom’s challenges have been driven by a number of factors (including) massive cost and time overruns on building our new power stations (Medupi and Kusile). The effects of State Capture and corruption also contributed to those cost over-runs. The collapse of governance structures at Eskom also had an impact.”
But the interesting bit emerged in Ramaphosa’s response to Freedom Front Plus leader Pieter Groenewald on how the Eskom crisis was allowed to unfold when Ramaphosa, as deputy president, had led the Eskom war room.
It emerged on Thursday that the war room existed for about 10 months — from December 2014 when it was established to September 2015 when Brian Molefe was appointed as Eskom CEO. And it never got its teeth into the problems at the power utility amid the chaos of then-regular load shedding.
“What the war room never really got close to were the financial machinations. We were more concerned with keeping the lights on,” said Ramaphosa after he had described the war room as “seminal”.
“It got very close [to] how the system works. It got us to see how power stations were functioning and malfunctioning.”
Ramaphosa told the House he had gone to then-president Jacob Zuma to request the closure of the war room – “and it was closed” — in what appeared to be an acknowledgement of the mess that the power utility was in.
“There were too many entry points into Eskom. I had been appointed to head the war room. But at the same time I am not able to wrap my arms around Eskom to take effective decisions, because at every point there was another entry of another idea or other people…” said Ramaphosa who added that State Capture did not rear its head “when we had the war room”.
But since the war room in 2015, Eskom has remained governance and financial migraine.
The R419-billion Eskom debt, taken on the back of government guarantees totalling R350-billion, is the most significant threat to the South African economy.
While Finance Minister Tito Mboweni did not announce a debt swap in his Budget, he did announce a bailout: R69-billion over the next three years, and depending on the situation then, further support of up to R150-billion amortised over the next decade to 2029.
This support is conditional on the restructuring of Eskom into three entities — the transmission unit is planned to be up and running by mid-2019 — and the appointment of a chief reconfiguration officer to oversee the unbundling and associated processes. Trade unions, labour federations Cosatu and the South African Federation of Trade Unions (Saftu) were loudly critical, saying this was tantamount to privatisation and workers’ retrenchment.
In mid-February, Public Enterprises Minister Pravin Gordhan told MPs that fixing Eskom would be a long haul given the problems not only in its finances, but also ageing power plants and ballooning management and staff ranks and just plain shoddy workmanship.
Gordhan on Monday announced the appointment of the Eskom technical review team of 11 industry specialists to examine unplanned outages and unscheduled maintenance alongside such planned activity, operator errors tripping power plants and technical and operator inefficiencies. The team takes up where Ramaphosa’s earlier Eskom sustainability task team left off.
Not everyone was convinced. The National Union of Mineworkers (NUM) noted the establishment of the Eskom technical review team, saying Ramaphosa “seems not to be sure about what should happen to Eskom. He seems to be engaging with every advice that is brought on his table. We view this as a recipe for disaster”.
And Thursday’s electricity tariff increase announcement seems to have added fuel to the fire.
Cosatu was unimpressed.
“Workers and their families are already reeling from an increase in fuel, food and other basic necessities. South African consumers can’t afford this tariff increase, and more families will be plunged deeper into debt and poverty,” it said.
DA MP Natasha Mazzone agreed:
“South Africans are struggling under a weight of tax burdens placed on (them) through ANC mismanagement, collusion, corruption and wastefulness in our State-Owned Entities, departments and municipalities. This large increase in the electricity tariff will eat into the already diminished incomes of the poor and lower income groups.”
Outa (Organisation Undoing Tax Abuse) said it welcomed Nersa’s probe into Eskom.
“It’s a steep increase, 14% is huge. It’s going to hit customers hard and the issue of failure to pay electricity bills will be exacerbated,” said Outa energy portfolio manager Ronald Chauke.
Ramaphosa’s Q&A in the House was one of several stops for Thursday that included briefing the ANC parliamentary caucus. But the carefully controlled optics of having comedian Trevor Noah in the public gallery — “Trevor, I never get this type of applause. So I’m jealous,” smiled Ramaphosa — fell away in a tough question slot that also canvassed Ramaphosa’s family business interests.
Like business tycoon Patrice Motsepe at a media briefing in February, Ramaphosa dismissed conflicts of interest.
“My brother Douglas runs his own business. We do not share a business. My brother-in-law Patrice Motsepe runs his own business. I have no wish to be involved. I do not benefit. My brother-in-law (Energy Minister) Jeff Radebe… he does his work in terms of government regulation.”
Responding to questions on Eskom, if not the tariff hikes, seemed to be the easier part of the about two-hour question session. Ramaphosa was overheard asking at the end:
“I don’t have to come back?”
Not in this Parliament, which rises on 20 March for the 8 May elections. But the regular question slots restart in the new post-election Parliament, with no doubt further tricky questions as the fuel price increases and escalating electricity costs start to hit cash-strapped citizens. DM