Dear Eskom, you cannot be half-pregnant

And Nersa cannot be managed politically.
Eskom is between a rock and a hard place and needs to make a decision quickly. Picture: Waldo Swiegers/Bloomberg

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.

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No company can continually increase it’s income requirements to try and satisfy it’s reckless expenditure needs. Capital and operational expenses are required to be stringently managed, reviewed and adjusted on a consistent basis in line with the realistic income and capital availability to a company. To continue with wasteful and reckless expenditure (including corruption leakages) on the premises of a disillusioned budget where the income streams and capital availability do not materialise year after year, is plain madness and a recipe for disaster. Eskom has not as yet started with efficiency management to obtain value for money results.

“No company can continually increase it’s income requirements to try and satisfy it’s reckless expenditure needs”.

Now let’s change a few words:

“A cadre fiefdom can continually increase it’s income requirements to try and satisfy it’s reckless expenditure needs”.

Now that makes sense.

The main issue is that Eskom is not run as a company. What non ‘tard company would increase their prices by 5.23 per cent and then spend this extra revenue on something they transport and sell at a loss when they have excess product? Dumber than a box of rocks.

People are foolish. We see the exact same thing in Cape Town with water. They would rather pay a highly inefficient wealth destroying statist organisation R10 per kilolitre for water than pay R5 per kilolitre to someone making a profit. Why? because water is a “right”. Of course there is a limit to the water you may purchase. What business limits the amount of their product you may buy?

ANC regime needs money. Eskom needs to be privatised. A match made in heaven. Well maybe, if it was not for the ANC as they belong in the lower echelons of the afterlife. Government cannot allocate resources efficiently. Break Eskom into power generation, grid (distribution) and sales. Let sales and grid compete with various generation companies. Let the market sort it out. It’s the only way forward.

Acting CEO has fired and is suspending quite a few snr people so maybe the new ones will do efficiency management.

“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”
I keep on saying that renewables are still too expensive and others defending them point to the “fix” price in the contracts. This is obviously not true, it seems that renewables are costing more each year.

Renewables should be costing less….so it depends who you are buying your renewables from and the deal struck!!!
If Eskom has an overcapacity and the deal needs re negotiation because the shortfall is needed for pension fund and medical aid payments then best we look at buying into Afrocentric… that’s where our increased tariffs are going to end up!

I would like to see a simple list of the renewable contracts and the rate Eskom pays. Then a comment by an informed person, say, Chris Yelland, as to whether these rates are correct based on global benchmarks. I suspect a few layers of “capcha” or “BEE”; a la etolls.

If Eskom want’s his day in Court let them. Then it’ll be up to huge companies/business to enter into the fray. These companies/business will have the capacity to show how the reckless mismanagement of Eskom had killed and absolutely destroyed the economy of South Africa due to the exorbitant hikes in electricity. It’s already a fact that small business had to shut down due to the exorbitant hikes in electricity by Eskom. Exorbitant hikes which is the passed on to the consumer and small business via the Metros/Municipalities who’s just raking it in. Bear in mind that Eskom now demands a hike of 30% in electricity before December 2018 due to “shortfall”. Nersa is incapable of dealing with Eskom and so it would appear the so-called newly appointed Committee and Pravin Gordin. As of 1 April 2018 VAT increase to 15% and electricity a basic right. Electricity should be on the list of exemption, but that’s a pipe dream as Government is also raking it in at the expense of every consumer in South Africa. My dream: Eskom and Government be hammered in Concourt and wouldn’t that be a victory for every consumer in South Africa!!!!

Never have a political party politicized the thing that is the most commoditized of all – the simple electron.

The ANC would politicize the flow of the air if they could.

ANC rotten to the core.

A point will be reached in future, where home PV-solar system (with battery bank/controller) will be the CHEAPER option 🙂

Plus it will add value to your house.

(Get it financed. We finance cars all the time, and that’s a mere mode of transport…)

Eskom (or Escom as it was called) has always been a moral hazard company – just read the parliamentary submissions on Eskoms costs from last year. It shows that Eskom since the 70s has always been able to push its costs onto consumers because of the power of the intensive users group. Eskom has no incentive to improve efficencies. Competition and a free market might help, but again if Eskom is the monopoly provider, no-one else will be able to afford to build nor is it feasible to have multiple suppliers in one place, again moral hazard.

We must just self provision for electricity and get off their billing. Leave the big energy users to fight with Eskom.

any further attempts by Eskom to loot further from public should be summarily rejected – the principle is clear – we stole the money and public must pay for it – we’ve had enough of looting and theft for 9 years now – Eskom over reaches rsa public already by 30% – nersa with their fraudulent “levies” on electricity account is an accomplice – rsa public had enough of zuma’s BEEE theft now

Very informative article

Privatize this SOE and all the arguements and angst will disappear. I would happily pay more for my Electricity if I knew it was a well run public company managing the resource and my money. Hell, they could even pay dividends on the earnings they could generate from this business! It’s a no brainer…but it takes someone with brains to know that!

Have Molefe and Mckinsey paid back the money?

Has Eskom reviewed the contracts awarded in the last eight years?
I suspect they are not getting much value out of them.

I am using nearly 0% Eskom electricty in my house.

Eskom’s inefficiencies will surely kill the economy. Has probably already cost us a recovery after the 2009 recession.

Actually it’s not the level of price increases that have contributed to Eskom’s woes, but the mismanagement, corruption, waste and according to some experts, the inefficiencies in operation, brought about by elevated staff and infrastructure costs, much higher than those benchmarked by international comparisons.

End of comments.

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