Eskom could end up in a ‘Steinhoff-type situation’ – Outa
The Organisation Undoing Tax Abuse (Outa) says it is alarmed at the reports that power utility Eskom has upped the value of its assets to over R1 trillion, “which is a way of manipulating a huge price hike”.
The group said that Eskom’s planned electricity price hikes are grossly flawed.
It comes after Moneyweb reported that Eskom wants an average tariff increase of 15% a year for the next three years. This is in addition to the recently approved back payment of R33 billion, through the Regulatory Clearing Account (RCA), which goes onto our bills from 2019; the two increases could add 20% a year to the tariffs, Outa said.
According to Moneyweb, Eskom intends asking the National Energy Regulator (NERSA) to approve these hikes within days.
“While this is a frightening prospect for consumers, Outa believes that even those tariff increases won’t cover Eskom’s debt repayment obligations,” the lobby group said.
It noted that Eskom bases the 15% hike on its revalued asset base, up from R702 billion in the last price application to a starting point of R1 288 billion.
“Outa is extremely perturbed by the grossly over-valued asset base used as the basis to calculate the 15% tariff increase. We ask NERSA to reconsider its decision to permit Eskom to do asset rebasing, by ensuring that Eskom adheres to international financial reporting standards (IFRS),” said Ronald Chauke, Outa’s portfolio manager for energy.
Outa said that economists have told the group that if best practice was applied along with stringent oversight over Eskom, the real asset valuation should not exceed R400 billion given the age and book value of most of Eskom’s coal fleet and other assets.
Eskom also assumes it will sell more electricity over the next three years, despite its ongoing sales slump, Outa warned.
The group said it believes that a steep increase in the price of electricity is hardly going to encourage sales and this is a way of padding the application to allow another RCA back payment in the future.
“Outa rejects the high electricity price hikes proposed by Eskom based on run-away personnel and primary energy costs and will continue to oppose the offloading of these uncontrolled costs onto already over-burdened consumers,” said Chauke.
Eskom’s debt by March was R387 billion and is expected to be R600 billion within four years, leading to the utility considering options for managing this to avoid defaults.
“Taking shortcuts like the asset revaluation to resolve deep-rooted structural problems is not ideal, as it could lead to a Steinhoff-type situation,” said Chauke.
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