The national energy regulator’s decision to grant Eskom tariff increases much less than what it asked for will leave the embattled utility with a R102bn revenue shortfall.
Eskom, which economists and ratings agencies have described as the single biggest risk to SA’s economy, said it was "keenly" awaiting the National Energy Regulator of South Africa’s (Nersa’s) reasoning for allowing it to raise prices 9,41% in 2019, 8,1% in 2020 and 5,22% the following year.
With a previously approved increase of 4.4%, which comes into effect in April, the rise for 2019 will effectively be 13.81%.
PODCAST | Business Day Spotlight - Government, Eskom & Sasol are on the hook for "Deadly Air"
For more episodes, click here.
Subscribe: iono.fm | Spotify | Apple Podcasts | Pocket Casts | Player.fm
While that is less than what the power utility asked for, it is more than twice the upper limit of the South African Reserve Bank’s 3%-6% inflation target. The increase is likely to raise
the ire of the monetary policy committee — due to decide on interest rates later in March.
Eskom wanted increases of 15% to 17% for the next three years, which it said were necessary for its sustainability.
Eskom, which was the epicentre of corruption and state capture during former president Jacob Zuma’s almost decade-long administration, is in the grips of an operational and financial crisis.
Electricity sales are in decline as its exorbitant increases drive away paying customers, and income from operations is not enough to cover the cost of servicing its R420bn debt.
More than a year after the appointment of a new board its financial and operational performance continued to deteriorate, culminating in the return of load shedding that has paralysed industry and led economists to downgrade their growth forecasts for 2019.
Independent energy analyst Ted Blom said the tariff hike could not be justified and effectively rewarded Eskom for its corruption and inefficiency. "It will kill jobs and the economy."
Nersa chair Jacob Modise said the regulator’s challenge was to regulate the energy industry in a manner that balanced the interests of energy producers and those of customers. He denied there had been any political interference.
"It’s when we do our work properly that we get criticised on both sides, then we know
we are achieving a balance," he said. "We are satisfied that it was in line with our methodology and the outcome was a reasonable one."
Eskom CFO Calib Cassim, said Eskom’s application was fully compliant and was underpinned by the need to ensure its financial sustainability.
Shaun Nel, spokesperson for the Energy Intensive User Group of Southern Africa, said the organisation’s members would be relieved that the requested 15% and above was not granted, and "to be fair, Nersa has to balance some of
the risk Eskom has from a financial perspective". Nel said the tariff hike came with an "implicit caveat" that Eskom would be turned around, and quickly.
In his budget in February, finance minister Tito Mboweni set aside R69bn for Eskom over the next three years, which could rise to R150bn over a decade, to help it service its debt, giving it room to use its resources to fund operations.
The aid is conditional on it meeting strict conditions, including its separation into different divisions. Nersa’s decision increases pressure to accelerate the unbundling process "in order to deal with the debt situation as effectively as possible", said Darias Jonker, director for Africa at Eurasia Group in London.
"However, because of this financial pressure, job cuts will look more and more necessary and this will in turn delay negotiations with the trade unions," meaning that restructuring will only start in 12 to 18 months.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.