Structural adjustment must precede Eskom lifeline, says economist
The National Energy Regulator of SA (Nersa) needs to find a short-term solution to help Eskom to get out of its financial crisis but this should be conditional on an immediate structural adjustment programme, Henk Langenhoven, chief economist at the Chamber of Mines, said on Friday.
He was one of several presenters at Nersa’s three-day public hearings in Gauteng into Eskom’s request for a 19.9% increase in its tariff for 2017-18.
By the end of the second day, the only issue on which presenters have disagreed is whether Eskom should be given a zero tariff hike or one in line with inflation. They have all rejected the power utility’s arguments for a 19.9% increase.
Eskom’s application comes after a slew of revelations of corruption and mismanagement at senior levels in the organisation at the same time when the utility battles to complete a costly capital expansion programme and electricity sales are falling in a weak economy.
Langenhoven said on Friday by the end of the first quarter of 2017, the mining industry was making an average net pretax loss of about R18bn. After a 19.9% increase in Eskom tariffs, 66% of gold and platinum mines would become unsustainable.
He said both a 19.9% hike in tariffs and the alternative, a government bail-out for Eskom, would be catastrophic for the economy. The tariff hike would curtail economic growth by 17% and cost 600,000 potential jobs. A government bail-out would raise the ratio of government debt to GDP to 75%. by 2021 from 50% at present.
He said structural changes needed at Eskom included accelerating decommissioning of old power stations, bringing operational costs, mainly headcount, in line with international standards, a complete evaluation of the regulatory asset base and accelerated completion of more efficient power stations. The regulatory clearing account and multiyear price determination regulatory processes also needed to be reviewed.
Tshifhiwa Tshivhengwa, of the Tourism Business Council of SA, said although globally tourism had considerable growth potential, there had been a marked decline in domestic tourism recently. The government and corporations had also cut down on travel.
He said electricity was the second-largest cost for the hospitality industry after salaries and wages. The industry had to take a long-term view since bookings could be made up to two years in advance. A 19.9% tariff hike made it impossible to plan and could not be passed on to customers because SA had to remain competitive with other tourism destinations.
Requier Wait, head of economics and trade at Agri SA, said the sector’s electricity bill was about R6bn and would rise to R7.3bn if a 19.9% increase were to be granted.