How to deal with Eskom's ever-rising electricity tariffs

Eskom has applied to the National Energy Regulator of South Africa for a 15% tariff increase from April 1 2019 for three consecutive years compounded.

This is on top of a 4.5% RCA price increase already awarded by Nersa for this date, and further RCA applications in the pipeline. RCA stands for regulatory clearing account and relates to recovering cost shortfalls from previous years. 

The power utility is facing dire financial constraints with excessive corporate debt of more than R420bn, as per its interim results presentation on 28 November 2018).

Current outstanding arrear municipal and Soweto debt, for electricity delivered but not paid for, amounts to some R28bn, and is rising by about R1bn a month.

It would appear clear that Eskom cannot simply pass its severe financial sustainability problems on to the customer through increased tariffs. When Nersa, which sets prices and tariffs for the power utility, does not give Eskom what it wants, others are going to need to step in to help share the burden.

A burden shared

Eskom itself must share the burden through a lower rate of return on assets, increased efficiency and belt-tightening across the board.

The shareholder – namely government and thus the taxpayer – must share the burden through further equity injections  - bailouts - linked to performance in terms of a credible recovery plan supported by government and the Treasury.

Eskom executives, management, staff and workers must share the burden through reduced pay, forgoing bonuses, reduced staff numbers, retrenchments and improved productivity.

In their own interests and to protect their existing Eskom debt, financial institutions, banks and lenders must share the burden through refinancing of existing Eskom loans with better repayment terms and lower interest rates, and by extending new loans even though with higher risk.

To protect their existing Eskom business, coal suppliers must share the burden through better prices and special pricing agreements to reduce Eskom’s primary energy costs.

The justice department, police, director of public prosecutions, Hawks, courts and Eskom itself must all play their part to root out and punish perpetrators of fraud, corruption, maladministration and unauthorised expenditure at Eskom, without fear or favour.

A faster death spiral

Simply expecting electricity customers to bear the burden alone through huge tariff increases will just accelerate the utility death spiral, with severe economic consequences for the whole country.

All the combined efforts must of course be conditional upon Eskom implementing a credible restructuring and recovery plan supported by government, business, labour, communities and civil society.

The justice department, police, director of public prosecutions, Hawks, courts and Eskom itself must all play their part to root out and punish perpetrators of fraud, corruption, maladministration and unauthorised expenditure at Eskom, without fear or favour.

Simply expecting electricity customers to bear the burden alone through huge tariff increases will just accelerate the utility death spiral, with severe economic consequences for the whole country.

All the combined efforts must, of course, be conditional upon Eskom implementing a credible restructuring and recovery plan supported by government, business, labour, communities and civil society.

* Chris Yelland is the investigative editor of EE Publishers. Views expressed are his own.

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