Industry and labour warn Nersa of death spiral and R20bn loss at Eskom
Industry and labour bodies want inflation-linked increases to electricity tariffs
Eskom, which is facing a net loss of R20bn in the financial year to March and is burdened by a R419bn debt, says it needs multi-year increases well in excess of inflation to return to sustainability.
Industry and labour bodies on Monday told the regulator that granting that wish would harm the economy and accelerate the company's own “death spiral” as paying customers desert the grid.
Business Unity SA (Busa), the Organisation Undoing Tax Abuse (Outa), AgriSA, the South African Local Government Association, Solidarity and Sibanye-Stillwater were among those that presented at the hearings held by the National Energy Regulator of SA (Nersa) in Midrand on Monday.
Outa also opposed the last-minute changes by Eskom on Friday to its tariff application, from 15% annually for the next three years to 17.1%, 15.4% and 15.5%, respectively. The Reserve Bank’s inflation target is 3%-6% and policymakers have consistently highlighted administered prices among the most important risks for interest rates.
Eskom CFO Calib Cassim told the hearing that the parastatal was projecting a net loss of close to R20bn at the end of the 2018/19 financial year, almost double the R11bn forecast nearly three months ago.
“Outa opposes Eskom’s change to its price application at the end of the consultation process,” said Ronald Chauke, the organisation’s head of the energy portfolio. The change, which the company attributed to changed estimates and projections based on most recent data, suggested that “Eskom is failing in its medium- to long-term planning”, he said.
Outa proposed that the multiyear price determination for the next three years be limited to a maximum of the inflation rate as reflected in the consumer price index (CPI).
Busa vice-president Martin Kingston also called on Nersa to suspend the tariff application review process and approve inflation-linked tariff increases until the electricity supply industry had been restructured.
He said Nersa’s approval of Eskom's electricity tariff application would constrain investment in SA and contribute to a stagnant economy, significant job losses and grid defection. This would worsen the “death spiral”, Kingston said.
“Eskom has consistently failed to motivate assumptions used in the price applications. Further, these assumptions have consistently failed to materialise. It is of critical importance that assumptions are realistic,” Kingston told the inquiry.
Sibanye-Stillwater business improvement manager Jevon Martin supported the call by the Energy Intensive Users Group for five years of CPI-linked increases while Eskom implemented its turnaround strategy. He stressed that the gold and platinum mining industries could not afford further electricity tariff increases above inflation without having to restructure. If Eskom’s tariff increase application were approved by Nersa, mines would have to close, with resultant job losses.
AgriSA economist Requier Wait warned that the drought-stricken agricultural sector would be hard hit by higher electricity tariffs, which would have “an enormous adverse impact on food security and on the sustainability of agriculture. Farmers are price takers; they cannot easily pass on inflated costs to the consumer.”
Wait said: “While reform plans are being developed and implemented, Eskom should not be allowed to transfer the costs of mismanagement to the consumer.”
Solidarity deputy general secretary Marius Croucamp warned of the negative effects that a significant hike in electricity tariffs would have on the local steel industry, which he said was operating on a marginal basis and was cost sensitive. Plants had closed and jobs been lost. The industry could not survive on local demand alone but had to rely on the very competitive export market. Profit margins were very low.
“The steel industry is energy intensive and input cost increases as demanded by Eskom will render it uncompetitive, resulting in the loss of the export market. Cost and price increases will also affect the local market and it will drive more imports, which will cause further harm to the local industry. The higher Eskom’s tariffs, the less competitive the local steel industry becomes,” Croucamp said.