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Eskom’s latest alleged suspension…

Cutting its nose to spite its face?

Moneyweb has learnt that Eskom suspended its head of regulation, Hasha Tlhotlhalemaje, who headed the ill-fated tariff application rejected by energy regulator Nersa last week.

This may jeopardise the utility’s chances of lodging a new application in time for implementation in the next financial year, and may thereby increase its financial woes.

Questions are also being asked as to whether Tlhotlhalemaje is paying the price for the embarrassing spat – between acting Eskom CEO Brian Molefe and Nersa regulator member for electricity Thembani Bukula – during the recent public hearings about the application.

While Eskom would not comment on staff matters, two independent sources with close knowledge have confirmed the suspension to Moneyweb. Tlhotlhalemaje herself could not be reached for comment.

She headed a small team that prepared Eskom’s application for a further tariff increase that would have seen consumers pay 25.3% more in the current financial year, if granted.

Nersa last week rejected the application and sent Eskom back to the drawing board to redraft or compile a new one. Nersa confirmed the views of many stakeholders, expressed at public hearings on the matter in June, that the application did not contain crucial information needed to interrogate it and that Eskom’s approach to address only selected cost items, was not correct.

Moneyweb has learnt that the application was drafted in a hurry as it became clear that Eskom’s plant performance had not improved as expected since December and Eskom realised it would need extra money in the current financial year to run its diesel-guzzling open-cycle gas turbines (OCGTs). It also needed extra funds to buy power from independent producers in terms of its short-term power purchase programme (STPPP).

On March 18 Nersa approved expenditure over and above that approved in the current tariff determination (MYPD3) for 1 359.9MW of STPPP power purchases for 2015/16. Nersa at the time said Eskom should claw back the money through the Regulatory Clearing Account (RCA) at the end of the financial year.

At the time of the RCA application the expenditure would be subjected to a prudency test, since Nersa in terms of its mandate has to enable an (prudent) efficient operator to recover its costs plus a reasonable return.

Nersa also approved extra funds for OCGTs in the previous financial year.

Different options were put to the War Room, consisting of representatives of different government departments brought together to expedite decision-making in the face of the Eskom crisis.

Nersa’s interim decisions gave decision-makers confidence that it would get the money back, and the decision was made in the War Room to try to expedite the process by submitting a ‘selective re-opener’ only focusing on its diesel and STPPP requirements.  It wanted to get the money ‘upfront’.

Tlhotlhalemaje and her team prepared the application accordingly.

However, this strategy backfired as Nersa refused to flout its processes and the National Treasury indicated in a circular that any further increase would only be implemented in municipalities in 2016/17.

Moneyweb and other media at the time reported on the content in the circular.

At the public hearings, Molefe maintained that the Minister of Finance Nhlanhla Nene could still extend certain deadlines to enable implementation of the increase in the current financial year. He surprisingly denied any knowledge of a letter from Nene that stated the opposite (as was also communicated in the Treasury circular).

In an embarrassing development for Molefe, Bukula disclosed that such a letter was attached as part of Eskom’s application to Nersa – the application which was prepared under Tlhotlhalemaje’s leadership.

Eskom spokesperson Khulu Phasiwe said the organisation now has to decide between the two options Nersa gave it, namely to apply for a full re-opener of MYPD3, including 2015/16, 2016/17 and 2017/18, or tackle an early MYPD4, stretching from 2016/17 – 2020/2021.

Whichever route is taken, Eskom will also submit annual RCA applications to claw back costs overruns in prior years, Phasiwe said.

Both routes, however, require speedy action from Eskom.

Nersa has indicated it needs six months to process an application. That means it has to be submitted to Nersa by the end of September. Before that, Eskom however has to by law consult local government association Salga and National Treasury. A comment period of 40 days is required. This means the application has to be sent to these parties by mid-August, which is five weeks away.

Eskom apparently has enough information for the period ending March 31 2018, but data beyond that has to be collected from within.

It will be a race against time to gather and process the information in time, and doing it without Tlhotlhalemaje as project leader will be even more difficult, sources with knowledge of the process say.

Exactly how big Eskom’s current cash crunch is, is not clear. The utility’s financial results for the year ended March 31 will only be released in August, Phasiwe told Moneyweb.

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