A body representing the agricultural sector is up in arms over the decision by SA’s energy regulator to effectively give Eskom the green light to charge more for electricity, and has suggested that farmers could be forced to move off-grid en masse.
Agri Western Cape said on Thursday that consumers can’t be expected to continue to carry the cost of a power supplier with a broken business model.
“The demand for electricity in the agricultural sector is basically inelastic and farmers can do little to reduce the specific costs of electricity, which can account for up to 20% of direct costs, in the short term,” said Agri Western Cape CEO Jannie Strydom.
Strydom said the fact that electricity costs have risen by more than inflation over the past decade and product prices have not risen accordingly contributes to the cost squeeze in which agricultural producers find themselves.
Last week the National Energy Regulator of SA (Nersa) approved R13.2bn of Eskom’s R27.3bn regulatory clearing account (RCA) application, which will have implications in terms of future tariff hikes.
The application was for the 2018/2019 financial year and was based on Eskom’s calculation of its need to be compensated for revenue shortfalls and cost overruns compared with those used by Nersa for its tariff decision. The RCA is a mechanism that allows Eskom to claw back certain uncontrollable costs incurred that were not taken into account when Nersa made its tariff decision.
In terms of the methodology used by Nersa to evaluate Eskom’s RCA application, it assesses qualifying allowed revenue and qualifying allowed expenditure against the relevant actual revenue and actual expenditure, as well as performance incentive-based adjustments.
Public hearings on the application were held in eight provinces in February, during which strong opposition was expressed against the approval of Eskom’s application. The Minerals Council SA, for example, argued that the revenue shortfalls and cost overruns were the result of mismanagement.
Nersa spokesperson Charles Hlebela said last week that the implementation plan regarding how and when Eskom would recover the approved amount still has to be decided. “The percentage tariff increase will be determined with the approval of the implementation plan,” he said.
Eskom argued that it had suffered a R5.5bn revenue shortfall, but Nersa approved only R2.4bn of this. For primary energy costs, such as coal and the open-cycle gas turbines, Eskom claimed R16.8bn but Nersa approved R11.4bn. Of the R1.7bn claimed for other primary energy, such as water usage, R1bn was approved; and Nersa did not approve any of the R4.8bn claimed for other costs.
Strydom said the financial effect of a tariff increase in electricity — as well as issues such as load-shedding during peak production times, which puts enormous pressure on the agriculture sector — are forcing the sector to explore alternatives.
In its presentation to Nersa, Agri Western Cape said it was not convinced that the request for a further amount of about R27bn was necessarily correct. “There are simply too many things in the application that are unclear and that indicate, in Agri Western Cape’s opinion, that Nersa and Eskom are not on the same page.”
Strydom said this is clear from the different views on how capital expenditure should be accounted for and the effect on cash flow; huge differences between approved and actual diesel consumption; huge variations between approved and actual energy costs (coal); unrealistic expectations with regards to the retrenchment of employees; and similar RCA applications that still haven’t been dealt with for the previous three years and led to legal proceedings.
With Linda Ensor
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