Eskom’s presentation to the Parliamentary Portfolio Committee on Energy on Monday contained one very important sentence – the very last one in a 30-page PowerPoint document:
“[The] Eskom board has decided to utilise the processes of the National Energy Regulator Act for a review of the Nersa 2018/19 revenue decision.”
The presentation dealt with Eskom’s response to energy regulator Nersa’s decision to grant it a mere 5.23% tariff increase for 2018/19, instead of the 19.9% it applied for.
Of this, three percentage points will pass right through Eskom’s books to independent power producers from which Eskom is obliged to buy renewable energy. Only 2.23 percentage points of the increase would therefore be for Eskom’s own benefit.
On the face of it, this last sentence means that the power utility’s board has decided to challenge Nersa’s decision in court.
This would make sense in the light of the numerous mistakes and inconsistencies in the Nersa decision Eskom pointed out to the portfolio committee.
Eskom criticised Nersa for assuming it could close two power stations overnight and save the associated coal and staff costs. Not so easy, says Eskom. There are legislative processes to follow before this can be done. Moneyweb has learnt that that could take up to a year to finalise.
Nersa announced its decision in December, recommending the closure of two Eskom power station due to Eskom’s over-capacity, and assumed it could have it implemented by April 1.
Not doable, says Eskom.
Contrary to its own methodology Nersa used different reference points for different cost items, Eskom says. Some of these reference points date as far back as 2008.
And then Nersa made some blatant mistakes, Eskom says. The leave pay it refers to, is actually a contribution to medical aid and the annual bonus is actually contributions to the pension fund.
These are just some of the less technical issues Eskom has with Nersa’s decision.
Overall, it says Nersa had to consider Eskom’s sustainability, but failed to do so. It has left the utility with R22 billion less that it applied for.
Eskom states: “The price increases granted over the last two years exerts enormous pressure on Eskom’s sustainability, liquidity and ability to continue providing electricity.”
In light of this argument and its concluding statement it seems fair that Eskom would exercise its rights and challenge Nersa’s decision in court.
In hindsight, Eskom probably should have done so when Nersa awarded it an 8% average annual increase for the five year period from 2013/14 to 2017/18 instead of the 16% it applied for.
Even the Energy Intensive User Group of South Africa (EIUG) at that stage said it would not be enough for Eskom to remain sustainable.
Eskom acting CEO Phakamani Hadebe however stopped short of telling the portfolio committee that the utility is on its way to court.
Eskom spokesperson Khulu Phasiwe afterwards explained to Moneyweb that Eskom does not want to risk a hostile relationship with Nersa by going to court.
Instead, the Departments of Public Enterprises, Energy and National Treasury together with Eskom will see how they can address the matter.
And this is where things get fuzzy.
Nersa is an independent regulator. It cannot be managed politically. It has to decide on technical matters by applying prescribed methodology and formulae. If it errs, its decision can be taken on review in the High Court.
That is the only (legal) way.
The only other way to address Eskom’s shortfall in the financial year starting in less than a week, would be for the shareholder, which is government, to bail Eskom out. And government has repeatedly said that won’t happen.
The sooner Eskom realises that it cannot be half-pregnant – either it takes the matter on review or it accepts Nersa’s decision – the better. Time is running out. The tariffs have to be implemented and everybody needs certainty.