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Eskom loses R69bn urgent-relief battle, but war continues

10th February 2020 BY: Terence Creamer
Creamer Media Editor

Judge Jody Kollapen on Monday turned down Eskom’s application for urgent relief in relation to the National Energy Regulator of South Africa’s (Nersa’s) controversial treatment, in its most recent tariff determination, of the R69-billion in government support announced in the 2019 Budget.

Kollapen said the application was not urgent and would instead be evaluated as part of the second phase of Eskom’s contestation of Nersa’s fourth multi-year price determination (MYPD4), which governs the utility’s tariff increases for the three-year period to March 31, 2022.

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Had Eskom received the urgent relief, which it argued was necessary to help it avoid financial calamity, the utility’s tariff could have increased by 16.5% on April 1, double the 8.1% already sanctioned for the year. In addition, the tariff could have risen by another 16.5% in 2021 instead of the 5.22% approved under the MYPD4.

In his response to the ruling, Eskom CFO Calib Cassim said he respected the decision of the court and that Eskom would follow its guidance on the matter.

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He immediately noted, however, that Eskom’s case had two parts, with the urgent application, which had been launched in an effort to influence the tariff that would be instituted on April 1, representing only ‘Part A’.

During the second part, or ‘Part B’, the merits of Eskom’s challenge of the regulator’s treatment of the “shareholder equity in its MYPD4 decision” would be heard.

“At the root of the matter is the fact that we do not agree with Nersa’s deduction of the R23-billion that we received from the shareholder, treating it as revenue.

“We are therefore encouraged by the fact that while the judgment says the matter is not urgent, it was indicated that there is merit in our case,” Cassim said in a written statement.

The same Eskom statement then went on to quote Kollapen as stating that Nersa’s treatment of the three R23-billion-a-year injections had “violated the basic principle of accounting by treating an equity injection as revenue”.

The judge added that “the reasonable judgement that Nersa is allowed to exercise cannot translate into an open-ended discretion that insulates it from scrutiny and judicial review”.

However, Kollapen also highlighted that the relief sought by Eskom presented problems of both principle and substance.

“At the one level the principle of separation of powers militates strongly against the court responding to such an invitation to set a tariff. The determination of a suitable tariff is a complex matter and requires careful weighing and balancing of a number of factors . . . Whether an increase of about 17% is consistent with the case advanced, whether it strikes a fair balance between users and licensees and its overall impact on the economy are all complex matters that are, for obvious reasons, best left to agencies with the necessary expertise.”

Nevertheless, Kollapen indicated that the court would seek to expedite the hearing of Part B of Eskom’s application, which was, nevertheless, unlikely to be finalised ahead of the April 1 tariff adjustment date.

“We will await the next phase of the court case in order to finalise the recovery of the equity provided by government that we believe was incorrectly deducted,” Cassim said.

Besides Eskom’s urgent-relief application, the utility was also legally contesting the regulator’s RCA rulings for the 2015, 2016 and 2017 financial years, as well as the MYPD4.

When the MYPD4 decision was announced, Eskom immediately highlighted that the determination had left it with a R102-billion financial hole, but that it would study the regulator’s reasons before taking it on review. Those decisions were eventually published on October 9, triggering not only the review, but also the decision to approach the courts for urgent relief.

Separately, Eskom was seeking to recoup, through the Regulatory Clearing Account (RCA) mechanism revenue of R27.2-billion it claims to have foregone during the 2019 financial year.

Nersa is currently hosting nationwide public hearings into the RCA application. The hearings began in Cape Town on February 3 and will conclude in Midrand on February 24.

Should Nersa agree that Eskom should be allowed to recoup all or part of the revenue it was seeking through the RCA, the April 1 tariff hike could still be adjusted upwards from the 8.1% approved for 2020/21.

The regulator has discretion, however, not only in determining the size of the adjustment, but also the timing of its liquidation. 

  • High Court of South Africa judgment in matter between Eskom and Nersa.
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