Eskom: Retroactive payment?

2008-03-26 00:00

Electricity consumers may be compelled to pay the possible higher electricity price retroactively if the increase applied for is not approved before April 1.

Thembani Bukula, a member of Nersa (the National Energy Regulator), responsible for electricity, has confirmed that Eskom wants the additional price increase, for which it applied to Nersa last week, to take effect from April 1.

“Eskom projects its annual revenue in the application and expects to be able to achieve it,” said Bukula. Eskom’s financial year starts on April 1.

According to Bukula, the chances that the process of assessing the application for the price increase before April 1 are slim. “It could take two to three months,” he said. “This therefore implies that the increase will have to be retroactive.”

Eskom submitted an application to Nersa last week requesting a 53% price increase, or a 60% nominal price increase. Bukula says this increase is in addition to the 14,2% nominal increase approved last year, which is due to take effect from April 1.

Eskom is, therefore, requesting a total price increase of 67,2%.

A source high up in the industry says Eskom wants Nersa to approve an increase slightly higher than this 53%, in order to compensate for the first three months of the financial year in which the entire increase did not apply. If Nersa approves the application, the total price hike will, therefore, amount to more than 67,2%.

While political parties and trade union leaders have reacted angrily to the application, analysts say a sudden sharp tariff hike is not necessarily only bad.

“A sharp increase is bad for growth and has a substantial effect on inflation,” said Cornelis van der Waal, an analyst from international consultancy Frost and Sullivan.

But, “Eskom has to borrow money to finance its expansion programme. The loan will have to be repaid with interest … If the amount is too high it would influence the assessment of (Eskom’s) credit worthiness and a higher interest rate could be charged.”

Adam Gordon, sector specialist in project financing from Investec, says that if consumers don’t pay more now, they will have to pay later in the form of taxes.

However, Gordon says consideration could be given to stretching the increase over more than one year.

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