Expect a massive electricity price hike to fund Ramaphosa’s energy plan: report

 ·31 Jul 2022

South African power utility Eskom says it needs to hike tariffs to fund president Cyril Ramaphosa’s new energy plan.

Speaking to the City Press, Eskom chief financial officer Calib Cassim said that the plan – outlined by the president earlier in July – came with many good news policies and changes but did not address funding.

Broadly, the president’s interventions include:

  • Boosting the recruitment of skilled workers at Eskom and addressing sabotage and theft at the utility;
  • Improving logistics to ensure that diesel-fired turbines are supplied in a timely fashion;
  • Allowing Eskom to buy excess power from private producers;
  • Importing more power from countries in the region;
  • Implementing a programme to incentivise the efficient use of power to cut demand by 600 megawatts;
  • Easing local content requirements so that renewable-power projects awarded in the so-called Bid Window 5 can go ahead;
  • Boosting the size of the sixth bid window and expediting further rounds;
  • Announcing a plan to deal with Eskom’s debt before October.

Cassim said that key points of Ramaphosa’s new plan require Eskom to do more maintenance while also increasing its sourcing of power from outside the company – both of which need money.

The power utility can apply to energy regulator Nersa to recover some operation costs and expenses through tariff hikes, which now appears to be Eskom’s key resource in funding the president’s changes.

In a consultation document published by Nersa this week, the energy regulator outlined Eskom’s most recent application for tariff hikes for the 2023/24 financial year. The document includes a projected tariff calculation showing a 38% hike next year, which Nersa said could be a possible outcome if Eskom’s wishes are granted.

Eskom’s revenue application amounts to recovering R335 billion for 2023/24 and R365 billion for the 2024/25 financial year.

The group has asked to recover R85 billion for purchasing power from independent sources in 2023/24 and R101 billion for 2024/25 – one of the critical interventions mentioned by Ramaphosa.

In terms of maintenance, it wants to recover R20 billion for this purpose.

Notably, Nersa rarely gives Eskom what it asks for in these applications. Eskom applied for a 20.5% increase in tariffs for 2022, but Nersa only granted the company a 9.61% hike. The power utility is taking Nersa’s decision on review and challenging it and its methodologies in court.

Cassim told the City Press that Eskom was still reviewing the president’s plan and assessing how it would ultimately affect its operations. However, he said that Ramaphosa’s address made these expenses government policy, which should be addressed sooner rather than later.

The government will also be stepping in to assist Eskom by taking over some of its debt.

South Africa’s Treasury is finalising a plan to take over a portion of Eskom’s R396 billion debt as part of a process to place the struggling electricity company on a sustainable footing, a top official told Bloomberg this week.

The Treasury has done financial modelling around the debt transfer and appointed lawyers to advise it on regulatory and legal hurdles, including loan covenants.

Taking over the debt is a move in the “right direction”, according to banking experts, who noted that the utility is simply “too big to fail”.

Cassim said that the debt takeover would provide relief, but only temporarily, saying that tariffs must reflect actual costs to be sustainable in the long run.

Read: Eskom forges ahead with first battery energy storage project – to be used for ‘peak shaving’

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