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Hearing on Eskom’s tariff hike

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“This is an average of 34.8 percent per year or, in other words, the price of electricity doubled every 3.5 years on average."

Panel chairperson, Nomfundo Maseti

PUBLIC hearings into Eskom’s application to make up for revenue variances took place in Kimberley yesterday.

Eskom is trying to recoup R66.6 billion through its regulatory clearing account (RCA) applications to the National Energy Regulator of South Africa (Nersa).

The hearings in Kimberley are part of a series taking place across the country.

During yesterday’s hearings, Nicol Jansen, vice president of Agri Northern Cape, pointed out that agriculture was dependent on electricity and the sector was highly concerned about the cost of electricity, the above-inflation increases and the financial impact thereof.

Jansen stated that while the price of yellow maize, which is the main crop in this area, together with wheat, had dropped to the same levels as 2008, the cost of electricity had increased by 348% over the same period (from R0.25 Kwh in 2008 to R1.12 Kwh in 2018).

“This is an average of 34.8 percent per year or, in other words, the price of electricity doubled every 3.5 years on average.

“The agricultural sector will be severely strained by further electricity increases.”

Jansen stated further that the cost of energy was a contributing factor in the change in the composition of the food basket in South Africa.

She explained that the pressure of economics on cash crops had led to a shift to perennial crops like pecan nuts, while the Lower Orange River was producing mainly for the export market. This meant that there was less for the local market, a constraining factor on food security.

Itumeleng Thatelo also made a presentation on behalf of the South African Local Government Association (Salga).

In his presentation, Thatelo pointed out that Northern Cape municipalities owed Eskom R838 million.

Municipalities, however, were limited by Nersa in terms of allowable increases in municipal electricity tariffs, which were linked by National Treasury to inflation.

“The majority of the 30% increase will have to be absorbed by municipalities, as Nersa has indicated that the budgeted tariff increases will be 6.84%.”

He added that Eskom areas of supply at municipalities were also of great concern.

“In the Northern Cape, municipalities’ electricity tariffs are already constrained by a very small industrial sector, where some of the largest power users purchase electricity directly for Eskom. This restricts the ability of municipalities to spread the burden of electricity costs and relieve the domestic sector. Households are already under immense financial pressure.”

Thatelo added that an extremely high unemployment rate and greater densification within residential areas in the Province was also placing further strain on the affordability of electricity.

“The incidence of theft of electricity will be aggravated by large increases, resulting in bigger losses.”

Higher tariff increase would also lead to greater incentive to use less electricity or employ alternative sources of energy. “Less consumption in turn will result in a greater unit price. This will affect the financially vulnerable even more as the affluent are usually those who can employ alternative means of energy generation for own use.”

From its side, Eskom’s Calib Cassim said the power utility was not expecting a once-off adjustment but rather a phasing-in of the liquidation over a few years to make it fair and manageable for electricity consumers.

“We need to emphasise that this is a retrospective process where we apply to recover costs that have already been incurred by Eskom, but cover what the regulator deems efficient and prudent and also cover sales volume variances.”

Eskom has made the application in terms of the RCA balance for the second, third and fourth year (2014/15, 2015/16 and 2016/17 period) of the third multi-year price determination (MYPD3).

According to Eskom, the power utility’s sustainability depends on a sound regulatory environment that is aligned with existing Nersa rules and other legislative requirements.

Eskom has lodged RCA applications with Nersa, claiming it has suffered revenue under-recovery and higher primary energy costs, and needs the money to be sustainable.

Cassim pointed out that the past few financial years – 2014/15, 2015/16 and 2016/17 – had been particularly challenging, with a decline in electricity sales, yet no decline in costs.

“There was a drop in volumes due to various factors including a downturn in the economy, lower investor confidence, a decrease in reliance on Eskom, commodity price changes and elements of price elasticity.”

Regarding fraud, corruption and irregularities, Cassim pointed out that in January 2018 a new board of directors was appointed.

Four senior managers have left Eskom due to serious misconduct allegations, while four executives remain on suspension, pending disciplinary hearings.

All employees are subjected to mandatory lifestyle audits, while various investigations are under way.

Nersa will announce its decision on Eskom’s application for the R66.6 billion on June 2.