FIFI PETERS: We had news regarding the forthcoming tariff increases that Eskom had applied for. You’ll remember that initially it wanted a 20% hike, and argued that this was the level that was a cost-reflective tariff and the level that was fair and would enable it to operate on a sustainable footing.
But the regulator did not grant its [request]. Nersa has given Eskom only around half of what it applied for – a 9.6% tariff increase to be exact. This is still pretty high for us as consumers, given the fact that inflation is sitting at around 5.7% presently.
But here to talk to us about what this means, and what it will mean for its responsibility to keep the lights on, we’ll be speaking to Chris Yelland, an independent energy analyst in just a bit. But before we get Chris’s take on this, let’s hear what Eskom’s response to the Nersa ruling was.
‘Eskom appreciates that the National Energy Regulator of South Africa has timeously made a revenue determination to allow for implementation from the 1st of April, 2022. This determination will allow Eskom to apply the adjusted price to customers. The board of Eskom will deliberate further before deciding on how to continue to sustainably provide electricity to the extent possible in the context of this revenue decision.
In addition, Eskom keenly awaits the reasons for the decision that will provide further details on how the revenue determination was arrived at. The chief financial officer of Eskom, Calib Cassim, says this decision will need to be further understood by Eskom. And it is understood that Nersa considered the impact on customers, as well as the economy and the financial sustainability of Eskom, as it made this tariff decision.’
FIFI PETERS: That of course was the spokesperson of Eskom, Sikonathi Mantshantsha. But, as I said, Chris Yelland is joining in on the discussion.
Chris, just your take on Eskom’s response and, I suppose, more importantly, what the fact that they’re getting only a 9.6% tariff increase actually means for its ability to continue keeping the lights on.
CHRIS YELLAND: Look, the fact that they’ve only got half of what they wanted puts Eskom under continued financial pressure. It’s already under financial pressure, and this just keeps it up. Of course, Eskom has various commitments, most particularly in terms of servicing its debt, both interest capital repayment. Much of this debt is guaranteed by government, so if Eskom runs into cashflow and liquidity problems as a result of not getting the right price increase that it thinks it needs, it goes to government and it gets bailouts.
So one way or another, we pay – either customers of electricity pay through the tariff, or if the tariff is kept artificially low and can’t sustain Eskom’s business, then Eskom gets a bailout from its shareholder, the government. That means the fiscus.
Really what that means is that less money is available in the fiscus for other government activities, whether education or housing or water or other services, health services and social grants and so on. So it impacts on us. We actually in the end pay one way or another, whether we are customers of electricity or whether we are taxpayers.
FIFI PETERS: Sure. I think that most people listening in on this can say that they have a lived experience of knowing what that means, just given the bailouts that we have seen going to Eskom in the recent years coming from our pockets as taxpayers. But you mentioned a probability; you said that if Eskom runs into financial trouble as a result of not being able to continue operating sustainably because it’s not getting the price for the electricity that it supplies, [it will not be able] to offset the costs to supply that electricity, essentially. Do you see that happening?
CHRIS YELLAND: Well, it’s already happening in the sense that Eskom has been getting regular bailouts from the shareholder every year for the last several years. I think it was mentioned in in the budget speech recently – the extent of this bailout. It’s measured in the hundreds of billions of rand. So it’s already happening and Eskom does its calculation and works it out.
Eskom has been having liquidity problems, and it has relied on government bailouts, and it’s going to continue to rely on them going forward. It totally addresses?? …….5:26 the underlying problem.
FIFI PETERS: Sure. When you say it has been having liquid problems, its recent results indicated that there was some form of turnaround happening – just its ability to even bring down its below R400 billion. It was a small decline, but a decline nonetheless.
CHRIS YELLAND: Yeah. Look, the only reason why it operated in surplus recently was because it had a 15% price increase last year. It relies on these very significant price increases in order to continue sustainably. As Eskom says, its current price levels are such that it cannot service its debt from its operating income, from its net tariff income. When you’re in that position, you are basically unsustainable, you have a liquidity problem and you rely on these bailouts. Eskom has been relying on them for the last several years.
So I think Eskom would argue; the response that you see from Eskom is basically saying, look, we are waiting for your reasons for decision, we’re going to study it very, very carefully, and we might take this on review in the courts as we have done in the past.
That’s obviously what Eskom was basically saying there. You know that in the past Eskom has taken these matters on review successfully. In fact, a good portion of this price increase of 10% that you see is not actually a price increase for Eskom. It is recovering previous RCA determinations, regulatory clearing accounts determinations. In other words it’s clawing back costs that were not covered for properly in its earlier tariff determinations in previous years. So in fact Nersa made it clear that it’s only getting about a 3.5% increase, and the balance of about 6% is actually just recovering and clawing back past determinations where it was not properly compensated by Nersa.
FIFI PETERS: Sure. Chris, we’ll leave it there for now. We’ll wait for the details on this, of course, once Eskom has studied the Nersa ruling and determined the course of action it will take from there on. Perhaps a catch-up conversation then. But sir, thanks so much for your time. Chris Yelland is an independent energy analyst.