Eskom reconfirms revenue need

Wednesday, February 6, 2019

As the National Energy Regulator of South Africa (Nersa) concluded public hearings into Eskom’s third multi-year price determination Regulatory Clearing Account year 5 (2017/18) and fourth multi-year price determination applications, the power utility says it has presented a fully compliant tariff application.

On the last day of countrywide public hearings by the regulator, the power utility confirmed its requirement of an average annual electricity increase of 17.1%, 15.4% and 15.5% for three years under the fourth Multi-Year Price Determination (MYPD4) and a Regulatory Clearing Account (RCA) balance of R20 billion for year 5 of MYPD 3.

At the hearings concluded at Gauteng’s Gallagher Estate, the utility said an inflation-based revenue growth, as suggested by a number of stakeholders, would push Eskom closer to the brink since a funding gap of R50 billion exists. This is even with the requested increases.

The utility’s Chief Financial Officer Calib Cassim said the regulator conducts an analysis for compliance with the Minimum Information Requirements for Tariff Applications (MIRTA), as well as the MYPD methodology.

“We received confirmation from the regulator confirming this fact. In addition, Eskom provided facts and evidence under oath to motivate its application for efficient and prudent revenue. We trust that Nersa will make a decision that balances the sustainability of Eskom with the impact on consumers according to agreed timelines to create certainty and avoid driving Eskom into further financial distress,” he said on Tuesday.

According to the power utility, the requested revenue is crucial to ensuring that it restores operational efficiency and delivers on its mandate of supplying reliable electricity.

The utility told the panel sitting for a third day of public hearings in Gauteng that the current financial situation is unsustainable and presents a risk to security of supply and its going concern status.

Debt concerns

Cassim told stakeholders that debt has grown nearly ten-fold over the past ten years even while prices increased five-fold indicating that price of electricity is too low.

“It must be noted that Eskom has looked into cost efficiencies from its operations but that alone is not enough to return it to financial sustainability.

“There is a need for the regulator and the shareholder to play their part in restoring Eskom’s finances, the former by ensuring that we move closer to a cost-reflective tariff and latter through shareholder support including a solution for municipal arrear debt,” said the utility.

Impact of electricity increases

Cassim said that Eskom is sensitive to the impact that electricity increases have on vulnerable customers including the poor and identified distressed industries.

“We have actively encouraged exploring policy options with government to protect identified vulnerable sectors, a matter that has become urgent. We are encouraged that Nersa has already approved two short-term incentives that addressed distressed industries successfully.

“There is a need to tie-up these interventions with South Africa’s industrial policy and economic development strategy to ensure sustainability for all,” he said.

Countrywide public hearings into the applications began on 14 January with the Western Cape kicking off proceedings. -