Registered users can save articles to their personal articles list. Login here or sign up here

Eskom tariff increase could cost us R1bn – Sibanye

‘Three shafts could close, 8 683 jobs lost.’

An electricity tariff increase of 19.9% could add R1 billion to precious metal producer Sibanye Stillwater’s annual electricity bill and result in the closure of three more shafts, according to its senior vice president Peter Turner.

Turner on Thursday told the national energy regulator Nersa that 8 683 direct and 1 770 indirect jobs could be on the line.

Turner made a presentation at Nersa’s public hearing about Eskom’s application for an average 19.9% tariff increase that is set to take effect on April 1 next year for Eskom’s direct customers and July 1 for customers supplied by municipalities.

If Eskom’s application is granted, bulk tariffs to municipalities would increase by 27.3%.

Read: Eskom top management due for lifestyle audits – Maritz

Turner told Nersa that Sibanye warned repeatedly in the past that Eskom tariff increases would result in job losses. It made presentations in 2013, 2015 and again last year, Turner said.

As predicted, increased electricity costs contributed to the closure of four shafts that were put into care and maintenance. As a result 8 702 direct jobs were lost.

Sibanye is one of the top five precious metal producers in the world and one of the five largest private electricity users in South Africa. It uses an average of 665MW of electricity per annum, which is 2.9% of Eskom’s demand, Turner said, and almost 20% of Sibanye’s operating cost.

Any increase in electricity cost impacts on the profitability and sustainability of Sibanye’s operations, Turner said.

Over the last five years the group’s electricity consumption grew due to operational expansions. Nevertheless the group achieved 100MW efficiency gains.

Electricity tariffs however grew at a compound annual growth rate of 17% over the last ten years, Turner said.

Despite demand reductions, Sibanye’s electricity cost has been growing exponentially and will amount to about R5 billion this year, Turner said.

An increase of 19.9% would add another R1 billion to the group’s electricity bill.

In 2007, electricity cost was 9% of total operational cost. This has grown to 19% last year and contributed to the closure of four shafts in the last four years, Turner said.

The group cannot mitigate a 19.9% tariff increase by improving productivity, he said. It will threaten the sustainability of operations and result directly in the closure of three shafts.

The closure of the three shafts will result in production losses of 6 212 kg per annum, which represents R3.3 billion in revenue.

Eskom itself would suffer as 55MW of electricity demand will be gone, representing R367 million annual revenue for the power utility, Turner said. The R479 million Sibanye pays to suppliers in relation to the three shafts will be lost together with a further 8 683 direct and 1 770 indirect jobs.

The potential loss in tax and royalties for the fiscus amounts to R1.6 billion, Turner said.

He recommended that Eskom embark on “aggressive cost cutting” and enter into negotiated pricing agreements with intensive users for the next two years in an effort to increase sales.

He said large users should be consulted by Eskom to ensure accurate sales forecasts and their tariffs should remain unchanged for the next year or two. Thereafter Eskom should provide them with a long-term price path to enable long-term planning.

Turner recommended that the three Eskom applications to claw back costs incurred in previous years through further tariff increases, be waived. Nersa has received the applications, but has not yet considered them.

He said in the long term Eskom should be restructured into three business, one each for generation, transmission and distribution with an independent system operator and buyer, to foster competition.

Lastly he said competition should be facilitated through the participation of independent power producers and sale of Eskom power stations to private operators.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.



To comment, you must be registered and logged in.


Don't have an account?
Sign up for FREE

Government and Eskom have no idea of the destruction they have created!

Given that they are as dumb as one could ever imagine it is till remarkable that after 27 years they simply have no clue at all.

How is this possible??????????????????????????

The compound annual growth rate of the Eskom tariff is more than 3 times the return of the Government Employees Pension Fund. The growth rate of the tariff even outperforms Warren Buffet. These guys should get medals! They are the best extortionists in the world! Or are we the biggest fools in the world, because we fall for their demands every time?

Nersa is a joke. It is a gathering of inept and incompetent clowns masquerading as a regulatory panel.

Do what I do, cut on electricity usage as much as possible.

*Switch off your geysers, it takes about three days before the water gets cold.
*If you live in a security complex, switch off all appliances except the fridge/freezer when going to work.
*For industries try to generate your own electricity like Sasol did.

Eskom is like the too big to fail investment banks of the US. They push up prices massively because they’re a monopoly, are inefficient. If they go cant get the increase they go bust and get a bailout. All through this, good or bad, management get big bonuses, in effect from Taxpayer money. How is this different to the outrage that the banks faced in the US when they got bailed out and paid bonuses?

Time for a restructure, either at Eskom from the taxpayers, or else the IMF will force it when we lose our sovereignty

Clearly the paying customers are being set up for a 20% increase next April.Supposedly Escum have cash flow problems and are owed about 18 billion which will never be paid.It’s apparently a question of higher tariffs or no electricity at all!

Sibanye should look to installing their own power generation maybe wind/solar/turbines in combination to counteract night time and inclement weather conditions. Pity Eskom doesn’t see fit to collect outstanding amounts from municipalities and where they provide power directly to citizens.

1) They also do not see fit to extradite the R 1 Billion from McKinsey?
2) Did they pay Molefe the R30 Million pension for a few months “Work”?
3) Did they also not see fit with Koko and the contracts awarded to his family?
These are the only ones we know about.
NB! If my bank borrows Eskom money, I will close my bank account.

We need a Zimbabwe-like soft coup to let the powers that be know that ‘enough-is-enough’.

Time to send in the Generals! If there are any at work that is.

What peevs me is that the municipalitys have huge debt because electricity was/is stolen, and in turn Eskom management also mismanaged their/our finances. Good night.

Just one instance of Eskom’s “Business Acumen”. Ten years ago, Eskom’s head count was approximately 35,000. Currently it is about 44,000. And yet Eskom’s total sale of electricity (per annum) has gone down by about 5% over the period (measured in Gigawatts). So the business model at Eskom has been to increase head count by 25% against a sales drop of 5%. And this has been accompanied by well above inflation salary increases, coupled with massive bonuses, for “a job well done”. No wonder Eskom needs extortionately high annual tariff increases!!
The price of electricity must be frozen for the next three years whilst Eskom embarks on a multi-billion cost cutting exercise.

For the amount of money Sibanye is spending on electricity why don’t they install their own power plant? We use a factory in China that has done this due to regular power cuts. They can now also run a night shift.

True enough Nick, but my little experience with Eskom and NERSA is that they will frustrate any attempt to generate your own power as much as they possibly can; easily stretching it into years. As you can see, they have no interest in SA; its economy or people, only themselves. This is even if it means destruction. Borrowing on SA assets and buying outside of SA seem to me the only viable solution. Funny that if you look who has done it.

I actually seem to remember that they said they were busy designing their own plant. Would be interesting to see if they do ever do it.

The very real and true cost of inept leadership who have ZERO idea about business, the socialist ideals of the anc, promising an improrished constituency “free” electricity and the final nail in the coffin – doing “business” (read corrupt relationship where by for kick backs, you ensure obviously one sided agreements to enrich one family) with the Gupta’s, buying pricey coal at an absolute premium when you’re not even getting your revenue right.

And when you’re under the spot light, you blame business and wmc and whine about how unfair life is and you lie through your teeth (looking at you Ms Brown), but you continue anyway because you’re a monopoly and feel you have the right to do as you please.

Eskom is caught in a death spiral, this is not going to end well for everyone

Load All 18 Comments
End of comments.


Insider GOLD
ONLY R63pm

Moneyweb's premium subscription is a membership service which will give you access to a number of tools to take charge of your investments.
Or choose a yearly subscription at R630pa - SAVE R126

Get instant access to all our tools and content. Monthly subscription can be suspended at any time.



Follow us:

Search Articles:Advanced Search
Click a Company: