Eskom’s application for a R66.6bn recovery from the regulatory clearing account came up against a wall of opposition on Monday due to the utility’s perceived inefficiency, maladministration and corruption.

The competence of Eskom’s management, especially regarding its coal contracts, came under the spotlight during the first of a series of public hearings on its application that the National Energy Regulator of SA (Nersa) will hold countrywide in the next few weeks.

Eskom has justified its application for the R66.6bn recovery relating to three financial years, from 2014 to 2017, on the basis of an under-recovery of revenue and higher costs compared with the assumptions used by Nersa when it made its multiyear price determination.

Cosatu, the Organisation Undoing Tax Abuse (Outa) and Mining and Energy Advisors partner Ted Blom opposed Eskom’s application saying consumers should not have to pay for past corruption and maladministration of the utility.

Nersa officials questioned Eskom executives about the reasons why Eskom’s costs did not decline while it was producing less electricity and was relying on purchases from independent power producers.

The officials said this raised questions about the efficiency of Eskom’s operations and whether it had taken the required steps amid changing market conditions and declining sales volumes.

Nersa also probed why Eskom had switched to more costly short-term coal contracts from Arnot coal mine when it should have concluded less expensive long-term contracts.

Eskom acting chief financial officer Calib Cassim conceded that less coal had been used during these years, some of which were plagued by load-shedding, but said the cost of coal had risen.

Eskom had not claimed all its extraordinary costs in its application, absorbing about R45bn in costs, he said. The biggest variance between the multiyear price determination assumptions and Eskom’s actual outcome related to revenue from electricity sales.

The revenue variance amounted to R44bn for the three years, or about two-thirds of the R66.6bn application and was largely due to the economic downturn, Cassim said.

Other items that had to be taken into account were the pass-through impact of independent power producers (R7.4bn), international electricity purchases (R9.1bn), coal burned (R3.5bn) and the use of open-cycle gas turbines (R1.4bn).

Eskom did not expect the R66.6bn to be liquidated on a once-off basis, but wanted it to be phased in. Phasing it in could however not be extended over a very long period due to Eskom’s need for financial sustainability.

Simply intolerable

Cosatu parliamentary liaison officer Matthew Parks rejected the application as "unaffordable, unreasonable and unjustifiable".

Agri Western Cape CEO Carl Opperman estimated that granting the R66.6bn application would translate into an effective 30% hike in electricity tariffs, which would "simply be intolerable" for the economy and the agricultural sector.

Outa energy portfolio manager Ronald Chauke said that Eskom’s application was an attempt to claw back from the public the consequences of its mismanagement. He recommended that Nersa grant Eskom no recovery.

Blom called for a full-scale, independent forensic audit of its finances to be finalised before Nersa granted Eskom anything under the regulatory clearing account. He estimated that R1.3-trillion had gone "missing" as a result of cost overruns, mismanagement and corruption.