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Nersa leaves Eskom in R34 billion lurch

Consumers to pay Eskom R32.7 billion more
Nersa chairman Jacob Modise says he is confident about the way the regulator makes its decisions. Image: Moneyweb

Energy regulator Nersa has once again left Eskom disappointed by awarding it R32.7 billion in response to three interim tariff applications, R34 billion less than it applied for.

This could be devastating for the struggling power utility, which stated in documents supporting a court challenge to another Nersa award that the R66.7 billion it applied for in interim increases is crucial if it is to retain its status as a going concern.

The R32.7 billion Nersa award will be recovered from consumers through increases in electricity tariffs, which could be spread over three years starting in April next year.

To give a sense of scale, it would amount to a 15% tariff increase if implemented once off in the next financial year, according to economist Mike Schüssler.

Over and above this award, in July Eskom is expected to submit another application for an interim increase in relation to cost overruns and revenue shortfalls in 2017/18, as well as its regular revenue application for the next three years (2019/20 to  2021/22) in terms of the fourth multi-year price determination tariff period (MYPD4).

Even if the tariff increases to raise the R32.7 billion Nersa awarded Eskom on Thursday are spread over three years, the cumulative effect of this and the two outstanding tariff applications could result in a shock increase for consumers in the first half of 2019.

In its latest decision Nersa once again hit Eskom on prudency and efficiency. When asked if the reduced award would be enough to maintain Eskom’s sustainability, Nersa chairman Jacob Modise said a licensee (like Eskom) couldn’t fail to operate prudently and be spared the consequences. He said it would be unfair to transfer imprudent cost to consumers.

Nersa will within three months provide detailed reasons for its decision and will at the end of September announce how and when the R32.7 billion will be recovered through increased tariffs.

During the consultation process that preceded Thursday’s decision, Nersa received 85 000 written submissions from stakeholders, including private individuals, intensive energy users, non-governmental organisations, environmental activists, local government and trade unions.

Modise said these stakeholders were concerned about the affordability of electricity, the economic impact of tariff increases, Eskom’s operational efficiency and the prudency of its expenditure, delays and cost overruns on Eskom’s Medupi and Kusile projects, its poor management and wrong decisions, and the potential rise in poverty, unemployment and inequality.

Modise said that during the public hearings Eskom conceded that certain governance failures occurred within the utility, but was not yet in a position to quantify the cost. He said once investigations have been finalised and the cost quantified, Nersa might in future recover such costs from Eskom.

He said Nersa is very confident about the way in which it makes its decisions. If Eskom is unsatisfied with the decision, it could take it to the High Court on review, as it is doing with the current year’s award of a 5.23% tariff increase.

Modise said Nersa will defend that action and added that while Eskom is free to exercise its rights, court challenges take long to finalise and contribute to uncertainty about the price path of electricity.

Eskom said it noted the decision and will be able to understand it once Nersa releases the reasons for its decision.

Listen to interview with Nersa regulator member Nomfundo Maseti here

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It would be fair to say that the ANC has left the Citizens of SA with a R700Bn plus lurch and Eskom in a massive lurch, thanks to their corrupt actions and mismanagement.

Once again NERSA has failed the consumer – what a “lovely surprise”. Food prices are beyond control due to ESKOM, NERSA and the Government failing the South African citizens. The VAT is already killing the consumer in the shops and electricity should be on the exemption list. The consumer had been pushed beyond means and it’s no wonder that one after the other municipalities and metros are failing. We can all but hope that the Court will decide in favour of the consumer. Eskom will obviously appeal as the dead cow must be milked. I for one wish that this will fall in the lap of the Concourt as I wouldn’t be surprised that Eskom and Nersa will regret the day they started these exorbitant price hikes as between them they had been the driving force for killing the S.A. economy.

“wish that this will fall in the lap of the Concourt” a joke surely? Look how totally ineffectual the CC was/is with SASSA. The rot goes deep.

Christina I share your frustration but the reality is somebody needs to pay Eskoms costs. It will either be on a user pay principle – through tariffs or it will fall to the taxpayer through a bail out. I think user pay is more fair. So I am not sure that NERSA is too blame in this instance. Somebody will have to make up the R38bn shortfall – and there is only really one somebody – the taxpayer.

This does not address the issue of why Eskom is bleeding cash. Obviously corruption and mismanagement played a massive role. I have heard more than one rumour that Eskom was running at a massive loss due to instructions from number one that there cant be anymore blackouts.

I dont think it is coincidence that the proverbial pawpaw is now hitting the fan – soon after Zuma and all his cronies shuffled of the stage

For every R100 of electricity used in the year 2007, today with 10 years of high increases we are paying R476. Compared to inflation + 2%, the amount today would be R234. The problem of huge increases is devastating to the consumer due to the compounding effect of interest over time. A 10% increase on R476 rands today is R47,60 whereas and increase on the inflation + 2% is R23,40. I do not understand why Nersa is not applying a once of increase for the year? We the consumer are bearing the brunt of ESKOM’s inefficiencies. Over the last 10 years bonuses has been paid to the ESKOM staff for running the company to the ground. Bailouts has been providded at a forther cost to the tax payer. Under normal sitution Eskom would have been liquited if not for the consumers. As a tax paying citizen, I am now going to install GAS geysers in the bathroom room and kitchen. At least I won’t be paying for the massive increases in electricity. This problem of punitive increases for the PAYING public is not going to stop. The arrears in the municipalities is increasing year on year. There is no solution that the municipalities can offer. The only solution is to request for additional punitive tariffs. For how long can this situation continue. Solar systems for the rich and for the middle class part of the solution will be GAS water heaters for the time being until solar solutions become affordable.

Electricity and food are now cheaper to buy in Europe and UK than in South Africa. I never thought I would see the day but here it is! Wow. No wonder there are so many Africans trying to get to greener pastures. All trying to leave sh..hole African countries to survive!

Who cares about Eskom, seems that any money given to Eskom is used for salaries and bonuses!

Plus load shedding.

End of comments.

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