South African Energy regulator Nersa must decide in the next month whether it will allow Eskom to give discounted tariffs to some clients.
Eskom spokesperson Khulu Phasiwe has confirmed to Moneyweb that the utility has applied to Nersa to charge a company called Silicon Smelters (with plants in Polokwane and eMalahleni) discounted tariffs over a period of two years.
Phasiwe would not disclose the extent of the proposed discount.
Previously, Eskom burnt its fingers in a long-term agreement with BHP Billiton which provided electricity to the company’s smelters at a low cost. The agreement was concluded decades ago when there was surplus electricity. Eskom could not extricate itself from it when the tables were turned and demand exceeded supply after 2008.
During two recent media briefings, Eskom CFO Anoj Singh hinted at price incentives for industrial clients in an effort to encourage increased electricity use as Eskom currently has an over-supply of generation capacity.
This is, however, the first concrete step in that direction and therefore unchartered waters.
Eskom’s tariffs are strictly regulated and the Electricity Regulation Act (ERA) provides that tariffs should allow Eskom to recover its full cost, provided it is efficiently incurred, plus a reasonable margin. It allows for cross-subsidisation between customer categories but forbids “undue discrimination between customer categories”.
The ERA further provides that the regulator “may, in prescribed circumstances, approve a deviation from set or approved tariffs”.
Such circumstances are not set out in the act.
Phasiwe said Silicon Smelters approached Eskom for assistance due to the depressed state of the industry it operates in. The utility decided to approach Nersa in an effort to assist the company and avoid job losses, but is asking for approval for only two years.
He said this is the first such application and Eskom would proceed according to Nersa’s approach to the application.
If the regulator approves the application, Eskom would consider similar assistance to other clients, but only those in distressed industries where jobs are at stake.
Phasiwe said while the poultry industry has not yet approached Eskom in this regard, the utility would consider an application from clients in the industry considering industry pressure. That would again be dependent on regulatory approval.
Henk Langenhoven, economist at the Chamber of Mines, says incentives would have to be substantial and long term to trigger investment decisions in the mining industry. Companies that closed their smelters and moved to other countries would not return for a two-year discount, he says. It might however provide relief in the short term to some distressed Eskom clients, depending on how big the discount is.
David Mertens, spokesperson of the intensive energy user members of the Nelson Mandela Bay Business Chamber, is, however, sceptical. The chamber successfully challenged Nersa’s decision to grant Eskom an interim tariff increase last year in the North Gauteng High Court. Nersa and Eskom have appealed against the ruling, but the appeal has not yet been heard.
Mertens says it is not within Nersa’s brief to support certain industries.