Eskom calls for cost-related tariffs

Eskom called for cost-related tariff increases on Tuesday, citing Sanral’s woes as proof that the consumer-pay principle needs to apply to safeguard the credit ratings of parastatals.

Finance director Paul O’Flaherty told MPs the utility needed tariffs to reach a cost-reflective level of 90c per kilowatt-hour in real terms by 2017 to complete its R385bn build programme and pay its debt.

“We are at 60 SA cents [per kilowatt-hour] at the moment; in real terms we need to get that up to 90c,” he said after briefing parliament’s public enterprises portfolio committee on the programme.

He said that when Eskom approached electricity regulator Nersa in July on the next set of tariff increases, it hoped to secure an agreement firstly to extend the multi-year price determination period to five years, and secondly to cover production costs.

“We will be asking for a longer period than three years because we need some certainty. We believe five years is a more appropriate path.”

He added: “We need to constantly remind [the public] that we need to move to cost-reflective tariffs. We need to make sure that our investment-grade rating is sound, although as we sit at the end of March, we have raised R180bn in debt; we need to get to R300bn.”

Eskom would not divulge the percentage by which tariffs needed to rise to achieve the required price level.

O’Flaherty said that since Eskom agreed on a funding plan with national treasury in 2010, it had put behind it a R300bn shortfall that stalled the construction of Kusile and had now secured 77% of the money needed to complete its two new power stations.

“I’m pleased to announce that more than 77% of our funding to finish off Kusile is completely secured and the rest has been identified.”

He said much of the money secured so far had been raised on foreign markets. The same probably applied for the remainder needed to finish Kusile and Medupi, set to be the world’s third and fourth largest coal-fired plants once completed.

This reinforced the need for a good credit rating to prevent Eskom going the path of Sanral, he said.

Moody’s Investors Service cut the road agency’s credit rating status to Baa2 with a negative outlook this month after a court interdict halted the implementation of e-tolling to cover the cost of the Gauteng Freeway Improvement Project.

“Once you go to the international markets it is very, very important, as you’ve seen with Sanral, that what you have is an investment-grade rating. If you don’t have an investment-grade rating it is very difficult to find money.

“So it is very important from an Eskom point of view that we continue on our path of solid investment-grade ratings, and that will come down to a tariff rate discussion.”

O’Flaherty recalled that Eskom managed to reduce the tariff increases from 25% to 16%, in part because the shareholder — the government — sacrificed its return of R8bn.

That saving to the consumer has now been exhausted, he said.

“The global financial crisis and the slowdown is a problem. I think the Sanral issue is a challenge. The user-pays principle needs to apply.”

Iraj Abedian, chief economist at African Capital, said Sanral’s inability to repay R20bn in debt had made both parastatals and the capital markets wary of what could happen if there was popular resistance to consumers paying for infrastructure.

“The capital markets are going to be on the cautious side to finance parastatals’ grandiose plans, especially if they span over several years.”

Abedian said the impact of electricity price rises on the economy could be mitigated by making public long-term projections on the increases needed to fund projects.

Five years was not sufficient to achieve this, he said.

“If you want to avoid midstream uncertainty, check the facts and share them upfront with all players, the public being the first among them.”  — Sapa

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  • Ian D. Samson

    Well, then, Eskom, we can all anticipate a DECREASE in the cost of our electricity!!

  • Crapstix

    Bunch of bloody clowns they are. Boswill Wilkie has nothing on these buffoons. They’ve know for years that there will be an electricity shortfall but nothing was done as per always.

    Now these tools are building more coal plants, not only bad for the environment, but expensive. No word yet of any nuclear plants or new IPP’s.. surely Gov could have spent the money wasted on the e-Tolling system (amongst many others) and rather contributed to Eskom’s purse?

    The more I read the news the more this country looks like an explosion in a banana factory.. 18 years of democracy maybe, but for 18 years things have been falling apart while the public are financially raped every time to make up for government’s utter incompetence and lack of vision.

    When is ‘Running A Government for Dummies’ coming out? I’ll order a few hundred copies and distribute at parliament with the greatest of pleasure.

  • Davebee

    So now we have come to the ultimate folly of living under a fascist, crony capitalist regime.
    Two basic commodities of modern industrial life are about to be snuffed out by MASSIVE prices which will become just unbearable, neither the public nor industry will be able to afford to use electricity nor to take their finished products to their customers as a result of the regime’s insane greed by way of Gauteng Tolls.
    I fear the worst is yet to come ie; a total breakdown as a result of unpayable bills!
    In short, roads and power will become LUXURY ITEMS.

  • David H

    Inasmuch as there were catchphrases popularized
    by parliamentarians and other public figures in years gone by, we now have a
    new barrage of blindsiding crap which will be popularized to legalize unchallenged
    tariff increases supporting runaway expenditure.

    need to constantly remind [the public] that we need to move to cost-reflective
    tariffs. We need to make sure that our investment-grade rating is sound,……”

    Why remind the public when it has been
    widely noted in the media that Eskom and Government are not cost-efficient.
    There are almost daily acknowledgements that fraud and corruption is rife. A
    tiny concern is how to deal with theft of prepaid electricity and corrupt Eskom
    employees, costing the company +R300 million per annum. How transparent is
    Eskom? Are we being fed propaganda alarmist news which doesn’t even represent a
    minute tip of the iceberg? They dare not make full disclosures for fear of
    public reprisals. Domestic consumers subsidizing business and industrial
    tariffs – is it fact or fiction and in the interests of trade relations and

    To make cost-reflective tariffs acceptable
    to the consumer prove that you have eradicated corruption and theft, have
    locked up miscreants, apply acceptable management salary scales and can
    honestly say you are running a cost-effective business. No-one minds paying a
    value for money tariff.

    It is maybe coincidental that public
    resistance to E-tolling occurred in the same month as numerous violent service
    delivery protests and vandalsing schools and official buildings. It is, however, not the single contributing factor on any credit rating assessment.

    Do not ride the soon to be popular blame
    apportioning catchphrase that the resistant public will be blamed for our
    international credit rating when that doesn’t quite cut it.

    Look at how the country is being run,
    frequent references to fraud and corruption, high profile and influential officials
    being investigated and suspended or fired, civil unrest for which there is no
    solution because of the aforementioned and deny that that is not the major
    cause of questionable ratings.

    We are no longer taxpayers and consumers
    but financial prostitutes. If we show any sign of resistance to unsubstantiated
    tariff increases we are now to blame for international black-listing.

    Please show us some RESPECT!!

  • JD

    Blah Blah Blah – I see nothing from the Eskom finance director about reducing executive pay based on performance and strategic skills sets, nor any indication that Eskom is actually looking at alternative electricity generation methods than simply relying on coal (to the detriment of all) – or is that too much to ask from government employees on the gravy train?

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