Eskom reveals tariff application details

Tuesday, October 13, 2009

Johannesburg - South Africans could soon be paying an additional 45 percent on their electricity bill every year over the course of the next three years, power utility Eskom said on Tuesday.

"The option we are proposing is that let's do it over three years by 45 percent," the utility's Chief Executive Officer Jacob Maroga said.

Eskom submitted its Multi-Year Price Determination 2 (MYPD 2) for the three-year period beginning in 2010 to 2013 to the National Energy Regulator of South Africa (NERSA) at the end of last month.

Maroga said should the tariff not be imposed on a 45 percent basis for every year over the next three years this, would translate to a once off 146 percent tariff increase.

He added that the country had been using cheap electricity for far too long.

Should the 45 percent tariff increase increment be implemented, Eskom customers will start paying the new tariff by April 2010 while municipal customers will begin paying by July next year.

The current average price of electricity is approximately 33c/kWh which does not allow for the recovery of all the prudently incurred costs and the building of reserves to sustain the current asset base, nor does it support the capital expansion programme.

Eskom's tariff increase will assist in the funding of both its current operational expenditure and invest in existing business, as additional power stations, major power lines and substations are being built to meet rising electricity demand in South Africa.

Due to the low reserve margins, South Africa has a greater reliance on more expensive power stations. The transportation of coal further increases the delivered price.

An average of R90 billion per annum is needed per year over the MYPD period for Eskom's new build programme which includes projects such as Medupi, Ingula and Kusile and well as completing the return of service of the previously mothballed power stations.

The Medupi project alone is four times bigger than the Gautrain project and even bigger than the five-year capital spend on all rail, port and pipeline upgrades in South Africa. The project is set to create 8 000 jobs directly at the peak of construction and up to 1 000 jobs in ultimately running the station.

The utility further requires significant capital to build new power stations and to ensure power stations and customers are connected.

NERSA is to hold public hearings to obtain further input on the application.