Eskom power price hike will be more than 8%

2013-03-17 10:00

Eskom has finalised its revised tariff-increase structures, which will come into effect next month, yet many households could still face a bigger increase than the 8% average approved by the National Energy Regulator of SA (Nersa).

The final notification of Eskom’s 2013/14 tariff increase was to be tabled in Parliament on Friday, following an earlier determination by Nersa that the power utility should halve its proposed fee hikes, from 16% to 8%.

Nersa’s ruling came after it found an array of inflated cost bases and wrongful assumptions in Eskom’s application for the 16% increase per year until 2018.

The decision was met with a collective sigh of relief by the business sector and consumers alike, following testimonies that Eskom’s proposals would have made South Africa one of the most expensive countries to do business in.

In its February announcement, the regulator had already determined that households serviced directly by Eskom should be charged increases ranging from 5.6% to 8%, depending on the level of electricity consumption.

But outstanding issues from Nersa’s determination were the increases Eskom would be allowed to levy on municipalities and major industrial users.

According to Friday’s notification, urban municipal authorities would be charged increases of 7.1%, and those in rural areas 12%.

Major industrial users, typically mines and industrial groups like Sasol, would be charged 9.6% increases, while rural businesses serviced directly by Eskom – typically farms – would pay 9.3% more.

As per the earlier determination, increases for households that consume less than 350kWh would be charged increases of 5.6%.

According to Eskom spokesperson Hillary Joffe, these households are typically located in townships, both in urban and rural areas.

They would pay 7.6% more for consumption of more than 350kWh.

This group represents about 3 million customers, according to Joffe.

Suburban consumers who receive their electricity directly from Eskom would pay 8% more.

Households serviced by municipal utilities would now have to wait for Nersa to approve the proposed increase of each individual authority before their rate of tariff hikes could be established.

Before she had sight of the approved increases, the SA Local Government Association’s head of marketing, Buhle Ngwenya, said on Friday that the organisation was concerned municipalities would have to bear the brunt of consumers’ anger should households be charged more than the widely publicised 8% increase.

“We must pay for the operational infrastructure (in municipalities),” Ngwenya said.

“We are nervous, because ultimately (if increases are more than 8%), municipalities will take the blame.”

The Chamber of Mines, whose members would typically pay a 9.6% increase, said the hike was slightly lower than expected, but could still put more unnecessary pressure on parts of the sector that are experiencing pressure.

Dick Kruger, the head of technoeconomics at the Chamber of Mines, said: “We were expecting 10%, but anything more than inflation is not good. There are a lot of mines out there that are not making money and this will only make things worse.”

While Eskom’s increase would take effect on April 1, municipal customers would start paying more on July 1.

Joffe said Eskom was yet to decide whether it would take on review Nersa’s decision to grant it only an 8% average annual revenue increase for the next five years.

Meanwhile, an unprotected strike, which has already started to affect coal deliveries to Eskom, may be resolved over the weekend, according to the National Union of Mineworkers (NUM).

Workers have downed tools at five of diversified mining group Exxaro’s coal operations.

The strikes centre on a range of issues, including the non-payment of bonuses.

NUM spokesperson Lesiba Seshoga said: “There have been discussions over the past two days and we’re making good progress.”

Exxaro was unavailable for comment.

 Court rules BHP Billiton must reveal what it pays for power

City Press’ sister publication, Sake24, on Friday won a long legal battle in which the Supreme Court of Appeal ruled that BHP Billiton must make public the price it pays Eskom for electricity.

This follows a battle between BHP Billiton, Sake24 and Jan de Lange, the publication’s specialist reporter.

BHP Billiton appealed against an earlier ruling of Judge Frans Kgomo in the South Gauteng High Court in Joburg.

Kgomo found that BHP Billiton and Eskom should be compelled, in the interests of the public, to reveal the pricing formula by which Eskom sells electricity to BHP Billiton’s two aluminium smelters, Hillside in Richards Bay and Mozal in Maputo.

According to the ruling, they also had to reveal the duration of the contracts, as well as the names of the individuals who signed the contracts.

The two BHP Billiton smelters alone use 5.68% of Eskom’s power generation capability.

Hillside, the bigger of the two smelters, uses 1 200MW, which makes it the third biggest electricity user in the country.

Its usage is only surpassed by the cities of Cape Town and Durban, each of which uses 1 300MW.

The electricity prices for Hillside and Mozal are partly or wholly determined by the aluminium price on the London Metal Exchange according to a highly secretive formula in a contract that was signed in the 1990s.

The agreement is valid for decades.

According to Sake24’s information, these two contracts are responsible for the R9.5 billion loss Eskom suffered in 2009.

BHP Billiton spokesperson Lulu Letlape told City Press the company was disappointed by the ruling, but that it would accept the judgment.

She said: “We think it is important for the public to recognise that the construction or refurbishment of the smelters ... followed strategic decisions by successive governments between 1970 and 2003 to encourage large-scale industrial projects by making surplus electricity capacity available.

“The agreements were entered into by both parties in good faith and with the full knowledge and support of the government of the day.” – Andre Janse van Vuuren and Sake24

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