Blame tariffs, not state capture, says Eskom, as court battle with regulator looms

Ailing power utility Eskom, which is battling supply constraints and crippling debt, will next week face off in court with the energy regulator over tariff increases as it struggles with low income and rising debt.

The state-owned entity, which reported a net loss after tax of R20.7bn for the 2019 financial year, has filed a two-part application in the High Court in Pretoria, seeking an order to review and set aside part of Nersa’s decision to curb its revenue from electricity tariffs for the period 2019/20 to 2021/22, in the fourth multi-year price determination (MYPD4), and allow it to recover R69bn over the next two years.

Nersa in March awarded Eskom tariff increases of 9.41%, 8.1% and 5.22% for the years to 2022, much lower than the amount applied for. According to Eskom, the decision will lead to a shortfall of R102bn over the three-year period.

Eskom also seeks an order permitting it to impose 16.6% tariff increase from 1 April 2020 and 16.72% from 1 April 2021 for standard tariff customers.

It said the urgent application is meant to "avoid financial disaster" for the company.

In a founding affidavit, deposed to by CFO, Calib Cassim, the company paints a bleak picture of its financial position, including rising debt, arguing that the decision has a potential to "further exacerbate the liquidity issues, potentially to breaking point".

The 70-page affidavit also points to a long history of electricity prices which were at "artificially low levels" which were applied without adequate consideration for the cost of generating, transmitting and distributing electricity, according to the power utility. Eskom argues that the impact of low prices was felt over the last ten years, when it had to embark on the construction of three large-scale power stations and the upgrade of transmission network.

"Eskom’s balance sheet weakened over this period owing to prices, approved by Nersa, which did not cover its prudent and efficient costs.

"The inadequate tariff increases allowed in the Nersa 2018/19 and 2019/22 decisions materially compound the strains on Eskom’s liquidity," the affidavit says, adding that a shortfall in revenue is likely to turn Eskom's liquidity issues into a national fiscal crisis.

The document goes on to paint the utility's bleak financial position, which would be compounded by inability to collect maximum tariffs, due in part to the regulatory measures.

Eskom says its funding requirements for 2020, excluding government support, exceed R99bn, in order for it to meet its operating expenditure, committed capital expenditure and debt servicing requirements.

Tariffs, not mismanagement to blame

Problems bedeviling Eskom, including the current load shedding crisis and poor maintenance of infrastructure, have been blamed on a variety of factors, including corruption and mismanagement.

However, the company has put the blame squarely on tariffs.

It said although there had been mismanagement challenges within its senior ranks, as well as issues allegation of corruption relating to State Capture, "the fundamental liquidity problems faced by Eskom are primarily a product, not of these issues, but rather of inadequate tariff increases".

"Even the wildest estimates of what State Capture-related activities might have cost Eskom in recent times, do not reach amounts anywhere near R69bn. And R69bn is, of course, the cost to Eskom merely of the latest erroneous tariff decision by Nersa."

In an answering affidavit, Nersa rejected Eskom's claim that its decision would have dire financial consequences for the company, urging the court to reject the application.

"Eskom and its management are the cause of the potentially catastrophic consequences. I admit that Eskom's financial predicament is solely caused by inefficiency, mismanagement and defective governance in an attempt to hide behind what is termed 'hidden costs'," read an affidavit deposed to by Nomfundo Maseti, an executive responsible for Electricity and Piped industry.

"Eskom's mismanagement and lack of governance clearly illustrates the extent of rot and corruption in Eskom."

The matter will be heard next week Wednesday.

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