Sanral e-tolling mess shows customers must pay: Eskom
The Sanral e-tolling saga has proven the consumer-pay principle needs to apply to safeguard the credit ratings of parastatals, Eskom said on Tuesday.
Finance director Paul O’Flaherty made the remark in a plea for electricity tariff increases to reach a level in the next five years where they would cover the utility’s production costs.
“We are at 60 South African cents [per kilowatt hour] at the moment; in real terms we need to get that up to 90 cents.”
O’Flaherty was speaking after briefing Parliament’s public enterprises portfolio committee on Eskom’s capital expansion programme.
He said erratic tariff determination over the five years leading up to 2010 saw the Kusile power plant project put on hold because Eskom “would not have been a going concern”.
The problem was resolved by the agreement, with National Treasury, of a funding plan in 2010, he said.
At that time, the utility had a funding shortfall of R300 billion.
“I’m pleased to announce that [on behalf of] Eskom as we sit here today, more than 77 percent of our funding to finish off Kusile is completely secured and the rest has been identified,” O’Flaherty said.
“So we see no issues from a funding perspective to finish off until the end of Kusile.”
He said much of the money secured so far had been raised on foreign markets. The same probably applied for the remainder needed to finish the Kusile and Medupi power stations, set to be the world’s third and fourth largest coal-fired plants once completed.
“Unfortunately, quite a bit of that is foreign debt. That needs to be borne in mind. So you do have the fluctuating exchange rate going forward,” he said.
“Once you go to the international markets it is very, very important as you’ve seen with Sanral, that what you have is an investment grade rating. If you don’t have an investment grade rating it is very difficult to find money.
“So it is very important from an Eskom point of view that we continue on our path of solid investment grade ratings, and that will come down to a tariff rate discussion.”
O’Flaherty recalled that Eskom managed to reduce the tariff increase for the current financial year from 25 percent to 16 percent, in part because the shareholder — government — sacrificed its return of R8 billion.
That saving to the consumer has now been exhausted, he said.
He said when Eskom approached electricity regulator Nersa in July on the next set of tariff increases, it hoped to secure an agreement firstly to extend the multi-year price determination period to five years, and secondly to raise tariffs to levels where production would be covered.
“We will be asking for a longer period than three years because we need some certainty… We believe five years is a more appropriate path.”
He added: “We need to constantly remind [the public] that we need to move to cost-reflective tariffs. We need to make sure that our investment grade rating is sound, although as we sit at the end of March, we have raised R180 billion in debt; we need to get to R300 billion.
“The global financial crisis and the slowdown is a problem. I think the Sanral issue is a challenge. The user pays principle needs to apply.”
Moody’s Investors Service this month cut Sanral’s credit rating status to Baa2 with a negative outlook, after a court interdict halted the implementation of e-tolling to cover the cost of the Gauteng Freeway Improvement Project.
O’Flaherty told MPs Eskom was satisfied with progress at Medupi and Kusile, with their first units expected to come on line in 2013 and early 2014 respectively.
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