Eskom’s application for a 36.1% tariff increase in the Sixth Multi-Year Price Determination (MYPD6) went strongly opposed at the first day of public hearings by the National Energy Regulator of South Africa (Nersa) in Cape Town.
This comes as the power utility was heavily criticised for cost overruns, including transport and travelling, that had no direct bearing on electricity production. This is on top of a 4% increase already granted by Nersa to recover losses of R8 billion in the 2021/22 financial year.
The Green Connection, an eco-justice organisation advocating for sustainable and equitable energy solutions,
The public hearings are a vital opportunity for citizens – especially those communities who will be most affected by the increasingly unaffordable cost of electricity – to engage on Eskom’s plans and to make the utility aware of the impact the proposed price increase would have on energy security.
The Green Connection raise questions about the sustainability of Eskom’s revenue proposals and highlighted the urgent need for greater investment in renewable energy, to promote more equitable access to electricity from more sustainable sources.
The most criticism was on Eskom’s application for an electricity tariff several times more than the consumer inflation, which presenters said would be unaffordable in the current economic climate and would force consumers to choose between putting food on the table or keeping the lights on.
At the hearing, Eskom cited the more than R90bn in municipal arrears debt, which it said was increasing at between R1bn to R1.5bn a month.
The power utility also noted illegal electricity connections, a decline in electricity sales, maintenance of generation equipment, and high insurance costs of more than R6.5bn a year as drivers for the tariff.
If approved, the tariff is expected to boost Eskom’s coffers by R446bn for the 2025/26 financial year, R495bn for 2026/27 and R537bn for 2027/28.
Eskom chief financial officer Caleb Cassim said the tariff would ensure the growth of the utility’s asset base from just under R990bn at present to R1 trillion and R66bn rand in the third and final year of the increase.
Cassim said the tariff would cover operating expenses of R93.3bn, including R37.4bn for the 33 000 employees, R66.6bn for electricity purchases from independent power producers, R10bn for international electricity purchases, and R66.9bn in depreciation costs.
He also cited R42bn for a return-on-assets, based on a between 4% and 5% return R6.5bn for the environmental levy, R5.5bn for the single quarter in Eskom’s next financial year that will be affected by the new carbon tax.
Cassim said there was a need to address the non-payment by municipalities whose increasing debt risked neutralising the government guarantee Eskom has from the National Treasury.
He said amongst the key drivers of the proposed increase, included a rise in primary energy costs to R128bn next year, underpinned by coal costs of R93.6bn.
Cassim said the consumer inflation alone could not be used as a benchmark for Eskom’s tariff increases as the utility faced the coal price drivers, exchange rate fluctuations, and high staff costs.
Nhlanhla Ngidi, head of energy at the South African Local Government Authority (SALGA), said the tariff would present further problems for municipalities.
“Municipalities collect 50% of Eskom’s revenue on its behalf. Eskom does not have the realities that municipalities have. They might have in some areas but not in the margin where municipalities are. We are in the forefront of social and economic issues,” Ngidi said, highlighting that municipalities were themselves owed more than R347 million by the public.
Ngidi also called for a dialogue between the government and industry on how cost reflective tariffs could be implemented to avoid dissent over unaffordability.
The hearings are conducted by Nersa’s full-time member for piped gas, Nomfundo Maseti after full-time regulator member for electricity Nhlanhla Gumede was suspended for undisclosed reasons.
City of Cape Town Mayoral Committee Member for Electricity and Energy, Xanthea Limberg, also rejected the application, citing inefficiencies in Eskom’s operations and the financial strain it would put on electricity consumers.
Swartland municipality’s electrical engineering services director, Thys Möller, questioned whether standard tariff customers would have to subsidise the Negotiated Price Agreements (NPA) of major industrial and commercial users.
He also described the granting of the increase, which would translate to 43.55% for municipal customers when implemented in July, as not affordable.
The Nersa’s public hearings will end in Gauteng on 4 December.
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