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Eskom consumers lose either way
26/03/2008 09:11 - (SA)
Aldi Schoeman, Beeld
Johannesburg - 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, the member of the National Energy Regulator of South Africa (Nersa) 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.
Bukula said: "Eskom projects its annual revenue in the application and expects to be able to achieve it. 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 asking for a 53% price increase, or a 60% nominal price increase.
Aiming at 67.2% 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, asking for 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, therefore, will amount to more than 67.2%.
But, Bukula says Eskom's application will not necessarily be approved.
While political parties and trade-union leaders have reacted angrily to the application, analysts say a sudden sharp tariff hike is not necessarily all bad.
Cornelis van der Waal, an analyst from international consultancy Frost & Sullivan, said: "A sharp increase is bad for growth and has a significant effect on inflation.
"But, we all know it's better to save than to postpone. Eskom has to borrow money to finance its expansion programme.
"The loan will have to be repaid with interest. The question is, is it better to pay now, or with interest later on?"
Van der Waal says if Eskom's tariffs are increased, the amount Eskom would have to borrow would be smaller.
"If the amount is too high it would influence the assessment of (Eskom's) creditworthiness and a higher interest rate could then be charged."
Large bonuses
But Van der Waal also said that "Eskom must pull up its socks".
"One expects Eskom to use the money effectively. The large bonuses must receive attention and internal spending must be investigated," he said.
Adam Gordon, a 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, anyway.
"If tariffs don't go up now, the government may have to help Eskom and then the taxpayer will have to cough up."
However, Gordon says consideration could be given to stretching the increase over more than one year.
- Beeld
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