Eskom will continue to make losses, even with tariff increases – regulator hears

Eskom is expected to continue making losses for the next few years, even with tariff increases, the National Energy Regulator of South Africa (Nersa) heard.

The regulator continued its public hearings on Eskom's tariff applications in Midrand on Monday. The power utility wants tariff increases for the next three years, as well as a clawback tariff for under recovery in the 2017/18 financial year.

Chief Financial Officer Calib Cassim said the regulator's decision on the tariff applications is important to ensure the power utility can turn back to financial and operational sustainability.

"We are projecting a net loss of close to R20bn at financial year end and it is clear that while we have maintained operating costs escalations around inflation levels, Eskom cannot solve financial and operational sustainability challenges that it faces alone.

"This loss situation will continue for the next few years even with the applied-for increases," he said.

Eskom's revenue requirement has remain unchanged and the power utility will have to make recoveries from lower sales pushing the tariff application from 15% for each of the next three years to 17.1%, 15.4% and 15.5% respectively.

Mpumelelo Mnyani, senior manager for sales forecasting, said that Eskom's sales forecasting process is robust but the market is volatile. "We have revised our sales forecast down and we welcome Nersa to run a verification process on the new numbers," he said.

The Organisation Undoing Tax Abuse (OUTA) in turn has opposed the change in Eskom's application and said it compromises the integrity of public participation.

OUTA believes Eskom should not be allowed the clawback tariff, and the hikes over the next three years should be limited to inflation.

In its submission to the regulator, the National Union of Metalworkers of South Africa (Numsa) also opposed the tariff hikes and said it would "worsen the suffering" of the poor and working class as it will make electricity "costlier and inaccessible".

The hikes would also have a negative effect on businesses by increasing their costs, the union submitted. Numsa suggested it would even led to job shedding. "When the cost of doing business becomes too expensive, businesses cut back. Labour is usually the first casualty and retrenchments and job cuts are the order of the day."

Cassim warned that if Eskom's financial situation doesn't turnaround, there would be "dire consequences".

"Lenders will recall their loans as Eskom will be in breach of the loan covenants and government will be liable to pay for the loan agreements that are guaranteed causing a run on a third of government debt and Eskom will also have to prepare the audited financial statements on a liquidation basis," he said.

Eskom has R419bn in debt it has to service. Last week the power utility said it managed to secure a R15bn credit facility, Fin24 previously reported.

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