Eskom needs more than R100bn, says large energy user body

The Energy Intensive User Group (EIUG), which represents large energy users who collectively consume more than 40% of Eskom’s electricity supply, is anticipating that President Cyril Ramaphosa will make an announcement in Thursday’s State of the Nation address about government’s assistance to Eskom.

And it should be more than the R100 billion Eskom has suggested, says EIUG project manager Shaun Nel.

Nel spoke to Moneyweb on the sidelines of national energy regulator Nersa’s public hearings in Midrand about Eskom’s application for steep tariff increases in the next three financial years.

Eskom initially applied for a 15% increase annually for the next three years, but revised its application in the last few days to 17.1% in 2019/20, 15.4% in 2020/21 and 15.5% in 2021/22.

More money for less power

This comes after Eskom revised its projected sales downward but kept the required revenue unchanged due to the lower output of its power stations.

Eskom also revised the 78% energy availability factor (EAF) of its generation fleet that it first based its application on – to 71.5%, 72.5% and 73.5% in the three respective years. Full-time regulator member for electricity Nomfundo Maseti, who chaired the hearings, questioned whether Eskom would even be able to achieve the revised EAF, since it is currently not far above 60%.

If granted, the tariff increase Eskom is applying for would be over and above the 4.41% that Nersa has already approved for 2019/20 in terms of the Regulatory Clearing Account (RCA) methodology, which allows Eskom to claw back expenses from previous years if the assumptions the tariff award in those years was based on did not materialise as expected.

Nersa is also considering a further RCA application for an additional R20 billion, which could add a further few percentage points if approved, depending on when it is liquidated.

First things first

The EIUG called for the suspension of the Nersa process. Nel said the methodology is designed to deal with a stable utility. Eskom is currently the subject of several parallel processes, and announcements about its restructuring and debt position are expected. He said these processes should be dealt with first, before a decision could be taken about a multi-year price path.

During the hearings, Eskom was severely criticised for revising its application upwards at the end of an extensive public participation process. Professor Jannie Rossouw said on behalf of the Fiscal Cliff Study Group that Eskom needs an austerity budget specialist to help it save money and budget properly, something he said it clearly doesn’t know much about.

He called Eskom a bully and said that despite being a monopoly, it is pricing itself out of the market.

Rossouw called for an end to the payout of all bonuses at Eskom and said the utility should disclose detailed employment numbers weekly. He also called for all Eskom board meetings to be open to the public.

He said Nersa is in no position to grant any increase until Eskom has shown what it can save with the help of an austerity budget specialist.

Increases would be devastating

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) said the impact of the increase Eskom is asking for would be devastating to its members. It called for no increase – or, if any is granted, that it should be well below the inflation rate.

The Helen Suzman Foundation said Nersa’s methodology cannot deal with the current instability at Eskom and also called for government’s assistance to stabilise the utility.

Nicholas Barnes, chairman of the Johannesburg Property Owners and Managers Association, which represents owners and managers of inner city residential properties, said a 15% Eskom tariff increase would be catastrophic for the working class tenants in those buildings.

Nersa is expected to announce its decision about the three-year tariff application as well as the RCA application by the middle of March.

It should then take effect on April 1 for Eskom’s direct customers, and be factored into the new municipal tariffs that take effect on July 1 in municipal supply areas.