Regulator slashes Eskom’s revenue

We’re borrowing money to pay salaries – Phasiwe.
Picture: Shutterstock

Energy regulator Nersa on Friday announced that it granted Eskom little more than a quarter of the 19.9% tariff increase it applied for for 2018/19 and in fact slashed its revenue to considerably less than it was entitled to in the current year.

Electricity tariffs will increase by an average 5.23% on March 31 next year for Eskom’s direct clients. The average percentage increase for municipalities will be determined in January and will be implemented on June 1.

Nersa will publish the detailed reasons for its decision later. Chairman Jacob Modise however made it clear that the regulator is of the view that Eskom is overspending and should be able to make do with R30 billion less than it applied for, without compromising its sustainability.

That is, if Eskom “makes the right decisions”, Modise said.

Eskom applied for R219.5 billion, compared with the current year’s R205.3 billion. Taking into account the continuous drop in electricity sales, Nersa however only allowed Eskom R190.3 billion in revenue.

Modise criticised Eskom for overspending and said the regulator specifically focused on the utility’s huge staff costs and generous bonuses paid to executives and staff earlier this year.

Nersa has made extensive recommendations to Eskom in this regard, which will be published along with the reasons for the decision once Eskom and Nersa have agreed on aspects that should remain confidential.

These recommendations are aimed at changing the way Eskom does business, but it is still up to the utility to implement it. “If Eskom cuts costs as we recommended, it will be able to get its cash flow back on track,” Modise said.

He pointed out that Eskom only reduced the use of its diesel-hungry open-cycle gas turbines (OCGTs) after Nersa earlier disallowed the multi-billion expenses that were not budgeted for. Similarly he said Nersa hopes to use the tariff decision to force Eskom to “take the decisions they should be taking.”

Nersa accused Eskom of abusing the Regulatory Clearing Account to get huge interim tariff increases. To prevent a recurrence of this, it carefully interrogated Eskom’s electricity sales forecast to prevent Eskom from submitting over-optimistic forecasts, only to later claim compensation when the sales are lower.

Modise added that in the current environment where Eskom has surplus capacity, customers wouldn’t pay for such capacity.

Modise said Nersa received 23 000 written comments and 96 oral presentations in response to Eskom’s application. With the previous multi-year tariff determination in 2013 it received 200 written submissions.

He said in taking its decision Nersa had to balance the interest of Eskom’s customers and end-users with those of its licensee (Eskom) and investors in the electricity industry. Nersa may however apply reasonable judgement and took the decision in the interest of the South African economy and the public.

Eskom expressed its disappointment with the small increase in a statement, saying it will await the reasons for the decision to determine the impact on its business.

Eskom spokesperson Khulu Phasiwe said in a radio interview that about 4 percentage points of the 5.23% increase will not benefit Eskom, as it will be used to pay for its purchases of renewable energy from independent power producers (IPPs).

Nersa has allowed Eskom R26.5 billion for IPPs compared with R23 billion in the current year. The IPP cost will be almost 14% of the total revenue, up from 11.2% in the current year.

Phasiwe gave the assurance that Eskom will be in a position to pay salaries for now.

Eskom in November confirmed that it had liquidity problems, which it blamed on the low 2.2% tariff increase Nersa approved for the current financial year.

Credit ratings agencies Moody’s and Standard & Poor downgraded Eskom later last month and Fitch put it on a negative credit watch. Nersa’s decision to limit the tariff increase is expected to raise further concern with the agencies, as Eskom will have to try and dig itself out of a hole with almost R20 billion less than in the current year, taking the increased IPP cost into account.

According to reports, Eskom’s own assessment was that it would have only R1.2 billion cash at the beginning of this month and will run into a negative liquidity position of R5 billion by the end of January. This has raised questions about its ability to pay salaries.

According to Phasiwe Eskom will use the proceeds of a recent R3 billion loan for “basics” like paying salaries. He admitted that it is not ideal to pay salaries with borrowed money.

Eskom last month also confirmed that it had only secured 56% of its funding requirement for the current year. This might become even more difficult and, if it succeeds in negotiating funding, increase the cost in light of the recent downgrades and reduced allowed revenue.

Eskom does have the option to take the Nersa decision on review in the High Court, but that might delay the implementation of the increase, which would further exacerbate Eskom’s financial problems.

R’m

2017/18 Approved

2018/19 Application

2018/19 Approved

Return

33 667

22 690

28 117

Primary energy

68 620

58 331

47 554

IPPs

23 018

34 209

26 596

Depreciation

29 197

29 140

24 903

Integrated demand management

1 244

511

Operating cost

49 468

62 221

51 122

International purchases

 

3 216

3 216

Research & development

 

193

112

Levies & taxes

 

7 994

8 039

TOTAL:

205 322

219 514

190 348

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Stop stealing and you will have cash.

NERSA & Jacob Modise should make the entire agreement public. Is this not a SOE that is funded by the taxpayer? We, the taxpayer, are entitled to know how our money is wasted.

Let’s expose the corruption for what it is – Theft, Bribery, misappropriation and manipulation of public money.

The time has eventually arrived for Eskom to tighten the belt like most private companies and S.A. citizens had to do the past few years. Eskom needs to lighten the over-inflated staff complement, to re-adjust the high salary scales, to cut the undeserved bonuses, to sell the luxury company cars of every second Tom, Dick Harry, to eliminated all the other wasteful expenditure and to stop the the free-flow bleeding and hiding places it has accumulated over many years.

Reading this breaks my heart and confidence in this country. What NERSA has to say is just basic business common sense … I mean basic! Eeerrrr basic!! Why is it that NERSA can see the problems and solutions and ESKOM can not!! Huh?

Eskom NEEDS Financial Fitness AGAIN !!!!!

The confidentiality disclosures sought by Eskom on the NERSA agreements MUST not be entertained. All enrichment deals entered into between Eakom and Gupta aligned companies were conducted on confidential basis, is it not? And were denied by Eskom for the longest time. Eskom have lost all rights to confidentiality and besides, it is a company owned by citizens that it seeks to milk dry forever. Eskom must understand that South Africans are angry and DO not trust Eakom on every aspect of their dealings.

There should have been NO tariff increase. 5.23% is too much!

Eskom can very easily survive on a 5% tariff increase.

1) Cut the bonuses, perks, reduce super expensive and incompetent staff.
You are paying more for staff(deadwood) than the private sector!

2) Look for cheaper coal suppliers, there are plenty of near bankrupt coal mines.

leave out the coal lets go for solar and wind

Eskom can easily be split up in 3 or 4 power producers and a company that runs the grid. In that scenario energy regulator NERSA should be the truly independent sector watch dog together with competition authorities and environmental agencies to guard us from price fixing and environmental disasters. Maybe Gov should only own around 50% of the grid company, as this basically a monopoly.Gov should only keep a broad oversight over the energy sector and provide guidelines for things like the required energy mix, renewables, coal, gas or nuclear.

This privatisation of the energy sector has happened in many west European countries, starting some 40 years back. No doubt good lessons can be learned there. No need to reinvent the wheel completely.

Eskom has a monopoly on electricity production so it is impossible to know what the price of electricity should be.

“He admitted that it is not ideal to pay salaries with borrowed money.”

genius, pure genius.

Soon ESKOM will “punish” the whole country with Loadshedding again, to remind us that we can’t do without (Eskom-generated) electricity.

End of comments.

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