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Eskom must implement ‘aggressive’ cost cutting, EIUG says as it urges Nersa to reject 19.9% hike

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Eskom must implement ‘aggressive’ cost cutting, EIUG says as it urges Nersa to reject 19.9% hike

Eskom must implement ‘aggressive’ cost cutting, EIUG says as it urges Nersa to reject 19.9% hike
Photo by D

14th October 2017

By: Terence Creamer
Creamer Media Editor

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Eskom’s application for a 19.9% tariff hike from April 1, 2018, is unacceptable and will result in the partial or full closure of plant capacity and increase unemployment, the Energy Intensive Users Group (EIUG) states in a written submission to the National Energy Regulator of South Africa (Nersa).

The regulator called for all written comments to be delivered to it by October 13, ahead of public hearings, which will take place between October 30 and November 16.

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The EIUG, whose mining and industrial members currently account for about 40% of all electrical energy consumed in South Africa and collectively contribute over 20% to gross domestic product, want the 2018 increase limited to the prevailing inflation rate.

The organisation also calls on Nersa to waive any move by Eskom to recoup – through three Regulatory Clearing Account (RCA) submissions, collectively worth more than R60-billion – revenue foregone during the third multiyear price determination period (MYPD3).

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During the five-year MYPD3 tariff cycle, Eskom was granted yearly tariff hikes of 8% from 2013/14 to 2017/18. However, RCAs relating to both MYPD2 and the first year of the MYPD3 led to nominal increases during the period ranging from higher than 12% to 2.2% last year.

There was subsequently a court challenge to Nersa's administration of the RCA mechanism, which delayed any further adjudications. Earlier in the year, the Constitutional Court ruled in favour of the regulator, opening the way for the processing of outstanding Eskom applications. Indications are, though, that Nersa will only consider these RCAs after a determination has been made in relation to the 2018/19 tariff request.

To remedy its financial pressures, the EIUG says Eskom should implement “aggressive cost-cutting”, while also addressing “manifest operational inefficiencies and gross irregular expenditure”.

In addition, the utility, which is at the centre of the so-called capture of State-owned companies by a politically powerful elite, should address reports and disclosures of maladministration, as well as allegations of corruption and governance failures.

These allegations are set to feature prominently during the public hearings, which will be held in all nine provinces, with the first hearing scheduled for Cape Town in late October and the last for Johannesburg in mid-November.

The hearings will partially coincide with an inquiry by Parliament’s Portfolio Committee on Public Enterprises into allegations of State capture, with the committee due to call its first witnesses on October 17.

Already AfriForum and AfriBusiness, in their written submission to Nersa, have argued that the costs of Eskom’s alleged corrupt activities and maladministration should be excluded from the calculation of the increase in the electricity tariff for the coming year.

“Eskom cannot expect the public to fund corruption and maladministration by increasing electricity tariffs,” AfriForum’s head of local government Morné Mostert said in a statement.

Eskom’s request is also likely to be attacked on procedural grounds, with the Organisation Undoing Tax Abuse (Outa) recently slamming Nersa for agreeing to allow Eskom to keep some costs secret in its application.

Nersa refused a request by Eskom to deviate from key aspects of the multiyear price determination (MYPD) methodology, as well as the minimum information requirements for a tariff application (MIRTA) following hearings earlier this year.

However, Outa says it recently discovered that the regulator has actually agreed to allow Eskom to keep some costs secret more than a month after publicly announcing that the information must be available.

“Nersa previously announced that it had declined Eskom’s request to omit certain costs from its revenue application, allowing it only to omit information on the regulatory asset base. But now it has emerged that Nersa subsequently decided to allow Eskom to keep certain coal costs secret,” Outa energy director Ted Blom explains.

“This is not transparent. Given this sad state of affairs, we reserve our right to approach the courts for relief if needed,” Blom adds.

Likewise the Helen Suzman Foundation (HSF), in its submission to Nersa, points to a lack of relevant information in the Eskom application.

Therefore, HSF legal counsellor Anton van Dalsen says the only option is to refer the application back to Eskom with a request for the missing information to be provided. “This will allow Nersa to avoid running the danger of judicial reviews for taking an irrational decision on incomplete data.”

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