Prepare for steep Eskom tariff hikes in April

Energy regulator Nersa has published the outcomes of its public consultations over Eskom’s request for tariff hikes to recoup lost revenue.

At a press briefing on Thursday (7 March 2019), the regulator said that it had granted Eskom the following tariff increases over the next three years:

  • 9.41% or allowed revenue of R206.34 billion for 2019/2020;
  • 8.10% or allowed revenue of R221.8 billion for 2020/2021;
  • 5.83% or allowed revenue of R233.1 billion for 2021/2022.

In determining the hike grant, Nersa said it considered Eskom’s regulatory asset base, weighted average cost of capital, expenditure, IPPs, depreciation, R&D and levies and taxes, among other factors.

The granted hikes equate to a 25.2% increase over the next three years.

The increase is in addition to a 4.41% price increase which had already been granted to Eskom by Nersa as part of its Regulatory Clearing Account (RCA) grant.

Eskom originally asked for a 15% hike in tariffs for the next three years to allow it to boost revenues and to help dig itself out of mounting losses and growing debt.

It wanted to drive revenue of R291 billion, R252 billion and R291 billion through the tariff hike for 2019, 2020 and 2021, respectively.

Earlier this year, however, the power utility revised its request upwards, saying it now needs a 17.1% tariff hike in 2019, 15.4% in 2020 and 15.5 % in 2021.

This would result in a 56% hike over the whole period, compared to the 52% hike before.

Eskom losing money

Eskom pleaded with Nersa, and the country, to allow the price hikes, saying that it was losing R500 million every month.

According to CFO Calib Cassim, Eskom needs R200 billion a year to operate – and that it would lose R2 billion for every 1% of the requested hike that Nersa would not grant it.

He said that unless Eskom can make more money through sales (from higher tariffs), even if it gets another R100 billion bailout from government, it will just get wiped out by debt servicing.

“We’re using one credit card to pay back the other credit card,” Cassim said.

The power utility has conceded that it was not the public at large’s fault that the company had found itself in its current crisis – but appealed to South Africa to help bail it out of the mess.

For the 2018/19 financial year, Eskom extended losses from R15 billion to R20 billion, off the back of a poor generation performance.

A projected R19.7 billion loss for 2019/20 will be reduced by R7.81 billion thanks to the 4.41% RCA clawback already granted by Nersa – but the power utility has made it clear that it needs much more.

The company is currently sitting with R420 billion of debt, which it is struggling to service through declining revenue.

Read: Eskom is losing R500 million every month: CFO

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Prepare for steep Eskom tariff hikes in April