energy

NERSA has approved R206,380 billion, R221,843 billion, R233,078 billion, which translates to 9.41%, 8.10% and 5.22% price increases for 2019/20 to 2021/22.

This excludes the approximate 4.4% already approved during 2018 for the Regulatory Clearing Account (RCA) recovery for the 2015 to 2017 financial years.

On the RCA application for year 5 (2017/18) of MYPD 3, NERSA has approved an amount of R3.869 billion.

Eskom has looked into cost efficiencies from its operations and the shareholder has given support of R69 billion over the next three years.

This is an important step to restore Eskom’s credit worthiness as debt providers, rating agencies and other stakeholders awaited this crucial decision.

The Eskom Board will deliberate further before deciding on how best to address the shortfall and it keenly awaits the reasons for decision as NERSA has disallowed R102 billion of revenue over the MYPD4.

Calib Cassim, Eskom’s CFO says, “Eskom’s application was fully compliant and based on the current regulatory policy and methodology. The underpinning principle of the application was the need to ensure Eskom’s financial sustainability to enable it to fulfil its mandate to supply electricity to the country.

"The methodology provides for the recovery of prudent and efficient input costs and as such the amount applied for was driven largely by expenditure on coal, maintenance, and human resources, as well as the cost of servicing the debt raised to finance Eskom’s investment in South Africa’s energy infrastructure.”

The Minerals Council South Africa’s Chief Economist, Henk Langenhoven says:

“We are disappointed to again see higher-than inflation increases being granted to Eskom, amounting to nearly two thirds of what the power utility applied for.

"There is no doubt that these substantial tariff increases will have a major impact on the industry’s cost structure, jeopardising the viability of marginal and loss-making mines and, inevitably, accelerating job losses at energy intensive mines in particular.

“It is most disappointing that the regulator has chosen to support Eskom’s own inevitable downward spiral that will come as a result of inflated tariff increases and declining electricity usage by a critical consumer.

"The mining industry consumes around 30% of Eskom’s annual power supply, for both mining and smelting activities. The industry has worked closely with Eskom to allocate demand to off-peak hours.

"In addition to being a major customer of Eskom, it is a consistent and early payer.

“As a result, the mining industry fundamentally supports the financial well-being of Eskom and helps ensure the supply of electricity to the country as a whole at current costs.

"If the mining industry’s usage declines as tariffs make certain operations and activities unprofitable, Eskom will not achieve its targeted sales volumes. This will inevitably result in additional substantial increases in electricity prices across the country, that will have to be paid by industrial and private consumers alike.”

The Minerals Council welcomes the much stronger position taken by NERSA in terms of impropriety and corruption at Eskom, as well as prescribed measures to Eskom to reduce costs; address electricity supply concerns; develop maintenance plans for its assets; and address inefficiencies and design failures at the Medupi and Kusile power stations.

The Minerals Council also notes that the R23 billion support announced by Treasury in February, combined with NERSA’s stricter position relating to cost variables, weak governance and management, and the structural changes to Eskom proposed by President Ramaphosa, should improve the efficiency of the power utility.

While these measures will take time to deliver results, it is hoped that they will mitigate the consequences of excessive tariff increases since 2006 as a result of state capture and the gross mismanagement of Eskom for which the productive and employment creating sectors of the South African economy are currently paying.