SA miners and other industries selling to international markets, which have cited Eskom tariffs as a major impediment to growth and a source of jobs destruction, ought to view their power bills in dollars, says Eskom CEO André de Ruyter.
Speaking at a webinar hosted by ENSafrica on Tuesday, De Ruyter advocated for cost-reflective tariffs that he said are critical to easing Eskom’s financial predicament, which is underscored by a R480bn debt burden. He was speaking ahead of the 27th Investing in African Mining Indaba, which features companies that are among the most intensive electricity users.
"It is my contention that it is indeed fair to attribute some of the input costs, including electricity costs, on a dollar-denominated basis if you sell your products into dollar-denominated markets," De Ruyter said.
"The reason why I say that is that very often we get told our electricity tariffs are not competitive compared to certain other jurisdictions. I think this is where we need to get the reality of the exchange rate built into the equation."
Industry leaders speaking at the indaba, which kicked off on Tuesday afternoon, have previously highlighted electricity constraints and rising power prices as key threats to the sustainability of SA mining.
De Ruyter, however, said that when Eskom’s average selling price is expressed as US cents per kWh, it is clear that SA tariffs have remained flat, failing to keep pace with US inflation.
"We need to get the exchange rate built in to also make sure we don’t have a mining or industrial strategy based on cheap electricity prices subsidised by the taxpayer, based on a fast-depreciating rand, but actually built on energy efficiency and competitiveness," he said.
Even when cost-reflective, De Ruyter said Eskom’s tariffs would be among the lowest third in the world in dollars per kWh terms.
Though Eskom remains hell-bent on pursuing cost-reflective tariffs, the utility recognises that if these were implemented immediately it would deal an "untenable price shock to the economy". Instead, Eskom envisages a "more moderate" approach of two successive increases of 15% per annum followed by inflation-linked increases thereafter.
"These increases are not unrealistic and they are not unreasonable given the alternative, which is to rely on continued taxpayer subsidies to enable us to pay our interest bill,"
De Ruyter said, adding that such an electricity price path would provide certainty to investors.
The utility is also spit-balling ways to ease the pain for consumers.
Self-generation of energy is seen as a critical lever for business to withstand SA’s energy predicament. De Ruyter said the utility sees it as a great opportunity to resolve the crisis and would strongly support the raising of the licensing cap for self-generation projects from 5MW to 50MW.
Where there are restrictions in terms of the grid, Eskom will ensure the required capacity can be brought online as quickly as possible.
De Ruyter noted that its proposed restructuring of the tariff is to show both an energy and capacity charge, which caters for the fact that Eskom is increasingly acting as back-up power to those people who are self-generating "and there is a cost attached to having that capacity available".
Eskom thinks there is a strong case to be made to remove an existing R8bn subsidy that goes from industrial and mining customers to other users. For indigent power users, Eskom believes free basic electricity should be increased from 50kWh a month to 100kWh.
To encourage energy efficiency, the utility advocates for the reinstatement of section 12 L of the Income Tax Act, which allows for tax deductions for energy savings.
For energy-intensive users distressed by price increases, Eskom would be willing to enter into negotiated price agreements to mitigate the effect of increases.
"So the headline numbers may look tough, but we believe that in a considered and targeted way we can mitigate the pain in a way that still secures Eskom’s future as a viable and sustainable business," De Ruyter said.
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