Carol Paton Writer at Large
Eskom power station. Picture: REUTERS
Eskom power station. Picture: REUTERS

Eskom is again dragging the National Energy Regulator of SA (Nersa) to court, this time for grabbing its R23bn government bailout from the Treasury, which the company needs to make it through to the end of the financial year and avoid disaster.

Nersa is the body that determines the tariff that Eskom can charge on the basis of a formula that allows it to recover the costs of producing electricity, as long as these are incurred prudently. The bailout package is the one that was announced in February and comprises three tranches of R23bn a year for three years.

A range of elements is part of the formula to determine the tariff, among them the cost of primary energy, such as coal; a return on Eskom’s cost of capital; its expenditure and purchases from independent power producers and neighbouring countries; and depreciation, levies and taxes as well as Eskom’s return on assets.

In determining the tariff for the next three years — a decision it announced in March — Nersa has now told Eskom in its published reasons that it offset the R69bn support package against Eskom’s allowable return on assets. This resulted in the return on assets being negative for the three years. This, in turn, resulted in a lower tariff.

The effect of Nersa’s action has been to neutralise the first government support package to Eskom. Since the budget, Eskom has been allocated another R59bn from the Treasury over the next two years. Both packages are required for Eskom to avoid a default.

In a statement on Friday, Eskom CFO Calib Cassim said: “Following an analysis of the reasons for decision, the Eskom board decided to take the matter to court. We have put in an application for urgent interim relief, which is necessary to avoid financial disaster for Eskom.”

The tariff decision announced in March awarded Eskom increases of 9.41%, 8.1% and 5.22% for the next three years to 2022. The decision left Eskom with a shortfall of approximately R102bn compared to what was applied for.

Cassim says Eskom is asking the court to set aside the tariff decision and return it to Nersa for reconsideration. Eskom is also asking the court to allow it to address the R102bn shortfall in a phased manner.

“It is our understanding from Nersa’s reasons for the decision that the rules and principles of the Electricity Regulation Act as well as the Multi Year Price Determination (MYPD) methodology have not been duly considered. The methodology does not allow for equity investment by government to be included as a return on assets. Nersa’s deduction of the financial support announced by the shareholder therefore defeats the whole purpose of government support.”

Cassim says that Eskom also believes that the reasons provided for the latest revenue decision are not aligned with the regulator’s own guidelines on prudency and its previous decisions. For instance, it had not treated the government bailout of 2015 in the same manner.  

“The MYPD4 decision has exacerbated Eskom’s situation further, and raises questions about Nersa’s commitment to implementing its mandate that requires considering the balance between the impact on consumers with Eskom’s sustainability when making revenue decisions,” Cassim said.

patonc@businesslive.co.za