Eskom’s argument for a 17% tariff hike

·18 Jan 2016

Eskom is presenting its case to the National Energy Regulator of South Africa for a 16.6% tariff hike to recoup R22.8 billion in lost revenue.

According to presentations made by the power utility, the biggest costs the company wants to recover is R11.7 billion for a shortfall in revenue, R8 billion in costs associated with the utility’s peaking open cycle gas turbine (OCGT) plants and R2.4 billion for primary energy costs.

The full breakdown is as follows:

Revenue variance – R11.7 billion
OCGT costs – R8 billion
Other primary energy – R2.4 billion
Coal burn – R2 billion
IPP extra purchases – R1.7 billion
Other – R0.2 billion

This is offset by the group’s net import/export position (-R2 billion) and IDM (-R1.2 billion).

The open cycle gas turbines cost the country just over R10.5 billion in 2015, due to load shedding. This was R8 billion over the projections from Nersa.

According to Eskom, there was also a R10.5 billion jump in operating costs which it is not allowed to claim through the RCA policies, which is adding further pressure to the group.

“Increasing the full RCA application in FY 2017 will increase Eskom’s cashflow by R22.8 billion,” it said.

This will give Eskom the improved ability to meet financial commitments; improve financial rations to support its debt program; and enhance the balance sheet.

The move would also bring certainty and stability that investors are seeking, and will improve investor confidence – impacting the group’s credit rating and funding security.

“Notwithstanding (this), Eskom’s credit rating remains unfavourable,” it said.