The National Energy Regulator of South Africa (Nersa) has accused Eskom of fear-mongering after the indebted utility claimed that the regulator’s “erroneous” tariff decision could thwart its recovery plan and expose the country to financial collapse.
The two entities appeared before Judge Jody Kollapen in the Pretoria High Court on Tuesday, where Eskom asked the court for urgent interim relief against Nersa’s decision to deduct R69 billion from its allowable tariff revenue, after the state granted Eskom a cash injection of the same amount as part of its rescue package.
This is part one of Eskom’s case against the regulator’s tariff decisions.
As part of its fourth multi-year price determination application (MYPD4) in 2018, Eskom approached Nersa for a tariff increase of 15% each year from 2019/2020 to 2021/2022. This would have amounted to R834 billion in allowable income over the MYPD4 period.
However, Nersa only granted the embattled utility 9.41%, 8.1% and 5.2% tariff increases for each year, resulting in a shortfall of R102 billion – which included the deduction of R69 billion, the amount provided in terms of the government support package.
Should the court grant Eskom the relief it is seeking, Eskom plans to increase tariffs over the next two years to recoup the money.
This translates to a 16.6% tariff increase from April 2020 and another 16.72% in April 2021 for standard tariff customers.
Read: Nersa: Eskom hiding inefficiencies, maladministration from court
Representing Eskom, senior advocate Matthew Chaskalson made it clear from the start that this is “a case of utmost national importance”.
“If Eskom does not get the interim relief, there is a much greater risk to the sustained financial sustainability of Eskom and a collapse of the state’s finances,” he said.
The cash-crunched power utility currently is over R450 billion in debt, R318 billion of which is guaranteed by the state. Chaskalson explained that if Eskom defaults on one loan because it is unable to cover its costs due to understated tariffs, that will trigger the immediate repayment of all its loans – including the state guarantees.
He went on to outline how this would also affect the state’s debt, which he said is interlinked. The failure of Eskom to meet its debt obligations could lead to the state having to pay the R318 billion – and if it can’t come up with that amount it will trigger an immediate liability for the state to pay its full debt of R918 billion.
“That will crash the finances of this country,” said Chaskalson.
“In preparing for this hearing and reading this affidavit I must admit I was scared. I was paralysed by fear,” said Nersa’s senior advocate Myron Dewrance, referring to Eskom’s argument that Nersa’s decision had exposed the state to almost R1 trillion in payable debt.
“What is evident in this application is the atmosphere in which the argument is being made is one of fear-mongering,” said Dewrance.
“The paralysis which that fear-mongering causes is akin to the paralysis that the potential Stage 8 load shedding instils.”
Nersa argued that it was not irrational in making the tariff decision. It maintains it had, contrary to Eskom’s opinion, followed its methodology and considered the impact of the increase on the economy, future electricity prices, Eskom’s sustainability and consumer affordability.
Dewrance also highlighted the fact that in addition to Nersa, Eskom had put Mineral Resources and Energy Minister Gwede Mantashe and Finance Minister Tito Mboweni as respondents in its application and, despite the framing of the matter as an issue that could have devastating effects on the finances of the country, these parties have been silent on the proceedings.
“What we are left with is potential speculation of the financial catastrophe and its imminence,” said Dewrance.
Judge Kollapen reserved his judgment, saying he would study the submissions and make the judgment within the timeframes that have rendered the issue urgent.
Read: The state of Nersa – according to Eskom
Chaskalson said the first part of the case has to be resolved by the end of March. This is so that Eskom’s tariff increases can take effect on April 1, to be imposed on municipal customers from July 1, according to the Municipal Finance Management Act, as well as to ensure that the utility has sufficient liquidity for the coming financial year.