Our tariffs are not high, says Eskom

Stakeholders reject 20.5% increase, citing corruption.
It was pointed out during the hearings that farmers cannot claw back costs the way Eskom does. Image: AdobeStock

Comparisons presented by Eskom to show that its tariffs are low compared to those in many other countries were met with scepticism on Thursday during the fourth day of energy regulator Nersa’s public hearings about the utility’s application for an increase of 20.5% from April 1.

Nersa panel members asked about the validity of the comparisons and the chair, Nersa full-time regulator member Nhlanhla Gumede, asked Eskom to show the composition of the tariffs that are being compared. Gumede cited the example of the fuel price that is high in South Africa compared with neighbouring countries because of the inclusion of several taxes and government levies.

Eskom senior engineer Dr Ulrich Minnaar had presented depictions of residential and industrial tariffs around the world in US cents per kilowatt hour (kWh) – based on BloombergNEF and International Energy Agency (IEA) data – as shown below.

Residential electricity prices around the world

Source: Eskom, using BNEF/IEA data for 2019 (USD c/kWh)

Industrial electricity prices around the world 

Source: Eskom, using BNEF/IEA data for 2019 (USD c/kWh)

Minnaar’s presentation came after Eskom CFO Calib Cassim pointed out on Wednesday that vulnerable customers are being protected against unaffordable tariffs.

Cassim referred to government’s electrification programme that subsidises access to electricity for the poor, providing free basic electricity to the poor, as well as earlier decisions by Nersa to limit the increases to households using small volumes.

With regard to industrial customers Cassim raised the point of government frameworks for negotiated pricing agreements, in terms of which industrial users can under certain conditions get limited tariff relief.

Cassim emphasised that subsidising one group of customers inevitably means another will pay more.

Eskom has applied for an allowable revenue of R279 billion based on its cost of supply. This increases to R293 billion when amounts it is allowed to claw back due to underrecovery in previous years is added.

Read:

The electricity Regulation Act provides that Eskom’s tariffs must enable it to recover its prudently incurred cost and a reasonable return.

According to Eskom even the 20% increase will not result in cost-reflective tariffs. It is projecting a 15% increase next year and 10% the year thereafter.

Prudently incurred?

Several stakeholders however questioned the prudency of Eskom’s expenses and pointed to well-known instances of theft, fraud and corruption within the utility.

Morné Mostert from AfriForum referred the Nersa panel to Eskom’s audit report, which contains several material findings regarding the mismanagement of money. In many cases the scope of the audit was limited due to a lack of proper records, which also hampered disciplinary steps being taken against those involved.

He pointed out that the auditors only looked at transactions of more than R25 million. “If that is what is going on with contracts of more than R25 million, what is going on with smaller contracts?”

Mostert showed that these findings were repeated year after year.

“There is a big problem with how Eskom manages its affairs,” said Mostert.

He emphasised that Nersa should constantly review the prudency of Eskom’s operations.

Agricultural sector under pressure

Nicol Jansen of Agri Northern Cape said agriculture is extremely important in the provincial economy and provides most employment, compared to other industries.

He said a large portion of Agri Northern Cape’s 3 580 members are irrigation farmers who rely on electricity for irrigation and to sustain the cold chain for their produce.

Jansen said the agricultural sector is not blind to Eskom’s problems, but these cannot be solved by huge tariff increases year after year. “Neither agriculture nor South Africa can afford it,” he said.

Farmers are faced with huge increases in input cost, including 34.5% for fuel, 16% for labour and more than 200% for certain fertiliser products.

Jansen also questioned Eskom’s prudency and quoted reports about the theft of R100 million worth of start-up oil per month at its Tutuka Power Station, fraud relating to spare components perpetrated by Eskom staff, and corruption at Kusile Power Station among others.

He made several recommendations, including prosecution of those involved in malfeasance, selling older power stations, and creating an independent power grid.

Fixed charges

He further asked that the tariff increase only apply to the energy charge on the Eskom bill and not to the fixed charges. Those, he said, should only rise in line with inflation.

This proposal was supported by Jillian van der Merwe from Municipal Accounts Disputes on behalf of Eskom customers in the North West province.

Van der Merwe said it is unfair that customers have to pay the full fixed access charges even when they have no electricity supply due to load shedding.

‘Apply prudency to Eskom staff cost’

Jannie Strydom on behalf of Agri Western Cape asked Nersa to develop prudency guidelines for Eskom’s staff cost, which he maintains is too high.

He said the agricultural sector cannot afford the increase Eskom is seeking. Farmers cannot claw back costs the way Eskom does, he said.

According to Strydom an increase of 7% can still be absorbed, but definitely no double-digit rise in tariffs.

The public hearings will be concluded on Friday (January 21). Nersa is expected to finalise its decision in February.

Listen to Fifi Peters’s interview with independent energy analyst Roger Lilley (or read the transcript here):

COMMENTS   9

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There is no need to argue about facts.

Get two universities to do an independent report. I’ll send them my past year of 350+ cent/kWh industrial energy bills. I pay more than prime California.

I do not care that a former Eskom boss organised a pillage tariff for his post-Eskom nest egg, that is on Eskom and should not form part of any averaging for the university report. No subsidy should, which is exactly what cheap tariffs are.
Same if our exports to some countries are not what the Energy Regulation Act requires – cost reflective.
Same with free basic electricity. If government buys votes from a third of the population then government must transfer that lost revenue into Eskom. It too cannot form part of averaging.

All this debate will stop when we stop the crazy notion of 100 councils and municipalities having 1000 tariffs compiled with varying degrees of incompetence and/or agenda. Implement an objective set of tariffs nationally -which tariffs also apply to Eskom Distribution clients. If there are subsidies (and penalties), those should be in a Treasury document and form part of the national budget, just as fuel taxes, sin taxes and social grants are public.

There remains the issue of bonuses for Eskom executives. In it’s efforts to reduce costs, bonuses should be the first thing to be suspended. COVID lockdowns forced most executives to suspend bonuses or even take voluntary salary cuts in view of business survival. They don’t have the backing of government when it comes to massive losses of income. Executives making prudent personal income decisions might strengthen their case for a tariff increase, but not in the double digit range.

“The electricity Regulation Act provides that Eskom’s tariffs must enable it to recover its prudently incurred cost and a reasonable return”.
I wonder what Eskom has done about its costs? Staffing level was quoted as 46000 (some time ago). Industry metrics suggest this should be around 30000. This alone will have a massive influence on costs.

If Eskom believes that their product is priced competitively, why are they defending their monopoly at all costs? Why do they need a socialist government with their failed central planning dogma to protect the Eskom inefficiencies and incompetence? Why don’t they privatize the grid?

Eskom has the cheapest source of high-grade and shallow coal beds in the world. They have access to the cheapest source of renewable energy in the world. We have some of the best engineers and managing skills in the world. Still, Eskom implements cadre-deployment and favours and protects the preferential and extractive BEE projects that hold the nation at ransom.

This monopoly monstrosity deserves to implode like the USSR. There is no place in the free market for a socialist disaster like this. ANC voters cannot afford this Frankenstein Monster they have created.

ANC voters get most things for free, only money is running out. Actually has been running out for ages.
The problem with socialism is it eventually runs out of money.
Since 2015 I made numerous comments that the whole energy sector has to be deregulated, liberalised and privatised as much as possible.

Correct, coupled with overbreeding and the increase in illegal immigrants, the numbers of those not paying are increasing dramatically! The situation is completely unsustainable, breeding into further poverty and ruin!

The short term is an undeniable “Fail”, and the long term is going to take a miracle if SA is ever to progress!

As Eskom has now repeatedly made claims in their PR and in legal submissions about our cheap electricity and now in formal hearings again, they could be forced with PAIA application to show truth.

What I would like to see from them is:

Per tariff category plus per special category not in tariff book,
Their actual revenue (total across all the admin, surcharge, kVA, kWh, transmission – everything),
The number of customers per row,
the kWh per row,
The min max and average cost per kWh.

We know council clients pay about 60% above council cost and can see the councils from the tariff category.

I am tired about the cheap story.

We deserve to know what the real facts are.

We also need government to inject from tax revenue into Eskom all subsidized tariff or “special” and policy situations. If Eskom is compelled to charge less for certain users, then that is a function of national policy that should be funded by central taxes not all other electricity users.

If MNY want to tackle this as a story, I’m sure we have subscribers with the inside knowledge to frame the PAIA application more exactly…

This is where the truth is distorted:

“ Cassim referred to government’s electrification programme that subsidises access to electricity for the poor, providing free basic electricity to the poor, as well as earlier decisions by Nersa to limit the increases to households using small volumes.”

To my knowledge free basic electricity is funded from central allocation to the councils as part of their shares of income. Nearly sure this is a line item in my council budget. If that is not funded in Eskom, Treasury must transfer that into Eskom. Policy is cheap when other people pay.

How will one ever put Eskom on a commercial footing if their revenue is hollowed out?

This is my other point:

“ With regard to industrial customers Cassim raised the point of government frameworks for negotiated pricing agreements, in terms of which industrial users can under certain conditions get limited tariff relief.”

If DTI wants pricing agreement they must fund that to Eskom for the differential from what those industrial users would have paid Eskom.

Again, very easy to put up policies that subsidise some users at the expense of others including their competitors.

End of comments.

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