Eskom’s bid to have the courts overrule the country’s energy regulator has been dealt its first blow as its urgent application for a tariff hike of nearly 17% in the next two years was dismissed on Monday.
Judge Jody Kollapen dismissed Eskom’s application for interim relief, which the utility wanted in order to stave off the financial crisis it said the National Energy Regulator of SA (Nersa) had exposed it and the country to as a whole.
According to independent energy expert Chris Yelland, the judgment means Eskom will have to find other ways to plug its sizable revenue shortfall.
"Eskom says it has a R50bn-a-year hole as a result of electricity prices not being cost reflective," said Yelland. "In the past it would be filled by borrowing money, but that can’t carry on forever.
"They are at the limits of their borrowing, and it comes at a very high cost."
Government bailout
Eskom is facing a severe financial and operational crisis, with cash from operations falling short of monthly debt service costs. Despite a R128bn government bailout over the next three years, the situation is so dire that the government is mulling Cosatu’s proposal to use worker pension funds to pay down the utility’s daunting R450bn debt.
Eskom asked for the interim relief pending the outcome of the second part of its application, which is yet to be heard, in which it seeks an order to review and set aside a tariff decision made by Nersa for the three financial years spanning from 2019 to 2022.
In its court papers, Eskom argued that the regulator’s decision had wrongly factored in R69bn in government bailouts for the utility and that this was irrational, procedurally unfair, and went beyond the energy regulator’s power.
Nersa contends that it "rationally considered the sustainability of Eskom, the affordability of consumers and the impact on the economy in the taking of its decision".
Eskom, in part A of its application, asked the court for interim relief of 16.6% and 16.7% in tariff hikes for this year and the next.
The utility argued that the matter was urgent because changes in tariffs must be tabled in parliament before March 15 on any given year to come into effect on July 1. But Kollapen did not agree. "It cannot be that the tariff determination for effectively a single year should be elevated to determining the survival or the demise of a significant state-owned entity."
Further, Kollapen said it was not the court’s place in an urgent application to determine a suitable tariff, something which requires a careful weighing and balancing of factors. "The legislature has appointed a specialist body that has the expertise to do precisely that and the court should respect those carefully crafted boundaries," he said.
The hearing for part B of the application would be expedited.
Even though the first part of the application was dismissed, Eskom CFO Calib Cassim said the utility was encouraged by the judgment’s indication that there was merit in its case.
In the 28-page judgment, Kollapen expressed his doubts that Nersa should have treated the equity injection as revenue, noting that it "violates the basic principles of accounting".
"In my view, the reasonable judgment that Nersa is allowed to exercise cannot translate into an open-ended discretion that insulates it from scrutiny and judicial review," the judgment said. "It must accordingly be arguable that the decision by Nersa in its treatment of the R23bn equity is open to review and possible attack."
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.