Eskom’s R67bn clawback is ‘unaffordable’

If the full amount of R66.6 billion in cost recoveries sought by Eskom was granted, it would result in a 35% increase in power prices, and such an increase would not be affordable to the economy.

Submitting to the National Energy Regulator of SA (Nersa) at a public hearing this week in Cape Town, the City of Cape Town’s director of electricity distribution, Leslie Rencontre, said the city believed that such an increase could undermine any potential turn around in the mining and industrial sectors.

Nersa started nationwide public hearings this week in Cape Town on the third multiyear price determination (MYPD3).

The power utility submitted an application for the regulatory clearing account (RCA), which allows for unexpected cost recoveries, totalling R66.6 billion for over its 2015, 2016 and 2017 financial years.

Rencontre said the city did not support the power utility’s application.

Cosatu, the Cape Chamber of Commerce and Industry, the Organisation Undoing Tax Abuse, Mining and Energy Advisors and Agri Western Cape all lashed out at Eskom’s application.

“We don’t want, as Cosatu, to see Eskom collapse. We know if Eskom collapses, the state will collapse tomorrow. The debt levels of Eskom of about R360 billion really represent an existential threat to the survival of the state and the nation,” said Cosatu parliamentary deputy coordinator Matthew Parks in his submission to Nersa.

“We are very angry at the leadership of Eskom over the past five, 10 years. Not just at Eskom but the former president, former minister of energy, their friends, the Guptas have really done a disservice to the nation.

“We will not exaggerate our members’ view of the conduct of Eskom leadership and our politicians, their families and friends as nothing short of treasonous,” Parks added.

Eskom’s request was completely “unreasonable and unjustifiable”, he said.

“Eskom has always requested increases while promising to sort out their irregularities but, come next year, they come up with another story. We have no faith in Eskom. We couldn’t even get a serious response on Eskom’s former CEO’s [Brian Molefe’s] employment status, whether he retired, was on sabbatical at Parliament, was he on paternity leave, unpaid leave. If you can’t even explain that properly, how then do you explain R66 billion or 30% or whatever percentage hikes.

“We are also not convinced that the application to raise tariffs is the only available proper solution for Eskom’s many crises. It seems like we are feeding bailout addictions of a drug addict of some sort.”

To protect the economy and workers and their families, he said, Cosatu proposed that Eskom’s application be rejected entirely.

Other reasons for rejecting the application were, he said, Eskom’s failure to come clean on state capture, the apparent threat by the utility to cut jobs, the utility’s failure to manage funds and the culture of wasteful expenditure, for example at Medupi and Kusile coal power stations.

He said the power utility should institute a comprehensive forensic and criminal investigation with dismissals, arrests, asset seizures and prosecutions of those involved in corruption and malpractice.

The Cape Chamber of Commerce and Industry’s Narieman Solomon proposed that a moratorium be placed on all MYPD3 applications.

Solomon also said that the MYPD methodology should be reviewed to allow for reform of the power sector.

Eskom interim group chief executive Phakamani Hadebe said, as part of his motivation for Eskom’s application to recover the R66.6 billion, that the RCA applications by Eskom represented an efficient and prudently incurred expenditure in relation to specifically identified cost and revenue items when compared to assumptions made when the MYPD application was considered.

He said the RCA should be seen as similar to a monthly fuel price adjustment, the difference being that the RCA is done annually.

“A favourable outcome of the RCA balance and ultimate liquidation thereof will go a long way towards ensuring Eskom’s financial sustainability,” he said.

Eskom acting chief financial officer Calib Cassim said the application was dealing with three years in one, following the first past year determination for financial year 2013/14, as there were core challenges which took long but concluded in August 2017, hence the culmination of three applications being dealt with in one regulatory process.

“These three applications ... are not the review of the 5.23% that was awarded by Nersa in December 2017,” Cassim said.

“Eskom is not expecting a one-off adjustment from the regulatory decision in terms of these RCA’s. We understand there are implications in terms of the economy, and regulatory rules have allowed for Nersa to take into account the phasing in of the liquidation of the regulatory clearing account, so we are not expecting a one-off adjustment,” he added.

The regulator’s Jacob Modise asked Cassim whether the portion of what Eskom is claiming is its revenue adjustment.

“You as Eskom management – you’re running a business. One of the things is that management running a business reacts to changes in market conditions to the extent that you have seen decline in sales and all those factors causing a decline in your revenue.

“Why is it that Eskom did not react to these market conditions by reducing their expenses in line with reduced sales?

“Why, in fact, is it that we are seeing exactly the opposite – that the bulk of expenses we’re talking about, those you are claiming from the R66 billion … are still going up?” questioned Modise.

Nomfundo Maseti, the regulator member on piped gas and electricity, who was chairing the hearing, said Nersa had asked the power utility to relook at their application as there were concerns about costs and inaccuracies.

“This is the first part of the hearing. We’re expecting to make a decision by the end of June,” she said.

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