Eskom doesn’t need a massive price hike: CEO

An energy expert has called on the National Energy Regulator of SA (Nersa) to reject Eskom’s application for any additional price increase for 2015-16 because of the company’s own admission that it can proceed without it.

Monday,15 June 2015, marks the closing date for written submissions to Nersa in response to Eskom’s re-opening of tariff negotiations for 2015-16.

Energy expert Chris Yelland noted that Eskom’s application for an additional 12.61% price increase is over and above the 12.69% already granted from 1 April 2015.

Eskom could earn nearly R40 billion if a 25.3% tariff increase it has requested is approved, the utility said recently.

Nersa said it would make a decision on June 29, 2015.

In his submission to Nersa in response to Eskom’s application for a 25.3% price increase, Yelland said that the question of affordability to the customer, be it to ordinary citizens or to the productive economy, is completely ignored by Eskom in its application.

He added that the disclosure of information in Eskom’s application is also completely inadequate for analysts, electricity customers and the general public to make any serious quantitative response.

Yelland said that claims by Eskom that a failure to grant the price increases it wants places the entire financial sustainability of the company, and therefore the economy of South Africa, at risk, are untrue.

He pointed out that in a presentation to Parliament on 12 June 2015, Eskom CEO Brian Molefe stated that that even without the additional 12.61% price increase for 2015-16 there would be no problem in rolling over R10 billion of debt that becomes due for repayment in 2015, and raising additional gross funding of R66 billion by the end of 2015.

“This submission to NERSA makes it clear that Eskom’s application for an additional price increase of 12.61% is grossly overstated and should be no more than an additional 3.63%, if at all,” Yelland said.

He said that Eskom is ready and able to cope financially without undue hardship without any additional price increase at all for 2015-16.

“It is also clear that the damage to the economy and municipal finances, and the hardship faced by the general public, would be very significant, and far outweighs the relatively low additional costs to Eskom, which are entirely of its own making and a result of its own failings.”

Yelland stressed that there are also significant other funding options available to Eskom and its shareholder including:

  • Sale of non-core assets by the shareholder to provide additional equity; sale of specific non-core assets by Eskom to raise capital;
  • Sale of specific generation assets by Eskom to raise capital;
  • Unbundling and restructuring of Eskom generation in line with the 1999 government white paper on energy policy; taking on of strategic equity partners to raise capital and gain new management skills, know-how, resources, technology and vision;
  • Increased public participation in Eskom through an initial public offering on the JSE and other bourses;
  • And/or combinations of the above.

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Eskom doesn’t need a massive price hike: CEO