Nersa’s hearings into the Eskom tariff hike request have closed presenting the panel with its biggest headache to date. Of the R66 billion claimed, some R44 billion was a claim for a shortfall of forecast electricity sales, while the balance included cost overruns on production.

Author – Ted Blom (Partner: Mining & Energy Advisory, with the Energy Expert Coalition

Eskom’s justification was that the claim calculations are within the multi year price determination rules of Nersa.

However, this deviated from the usual process as the claim was not audited.

Blom highlights that the claims were tainted with corrupt and fraudulent costs.

He points out that the claim period (2014-2017) corresponded with the peak corrupt Gupta activity as mentioned in the Public Protector’s report of 2016.

He further stated it was not prudent for Eskom to present these claims to Nersa before a full forensic audit had been compiled.

Blom averres that Nersa was not competent to consider claims that were fraudulently inflated, and requested the full set of claims be denied until forensically justified.

Blom also showed the panel how many of the costs contained historical distortions, such as the initial approved costs for Medupi, Kusile and Ingula which were at least R150 billion above initial quotes and market price.

These costs are also higher than world bank indicative figures, yet Eskom and Nersa had ignored the corruption-inflated numbers and allowed them to be capitalised to Eskom’s Regulatory Asset Base to rank for return under multi year price determination tariff negotiations.

Eskom’s numbers also did not distinguish results of poor management decisions and consequential higher costs including; higher diesel costs due to capital project delays, and higher maintenance cost due to Eskom’s policy of keeping the lights on at all costs.

Furthermore, it included the costs of an excessive headcount of over 30 000 more than neccessary (compared to other utilities).

Eskom eventually relented somewhat, stating that corrupt claims could only affect certain portions of their claim, and they would be happy to refund any excess in later periods via a voluntary application for a tariff reduction – should such frauds eventually be confirmed by the Commission of Enquiry.

Eskom’s final offer was to introduce a stepped tariff increase which would, in the long run, end up costing the public around R6 billion extra.

Blom’s view is that the multi year price determination rules do not make provision for Eskom to escalate the costs beyond the actual claim.

During the presentations, the Intensive Energy Users Group announced they would be happy to pay an additional R44 billion, much to the dismay of a number of their constituent groups – who claimed they would either have to cease operations or drastically cut back if any increase was forthcoming.

Blom has publicly stated that his Energy Expert Coalition is targeting a real cost reduction to lower than 40c/kWh (down from 98c)  – which according to his calculations was the real cost adjusted price which an efficient utility should charge under a properly applied multi year price determination regime.