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Eskom wants another 15% tariff hike for three years

Steep tariff increases ‘won’t even cover debt repayments’.

Struggling power utility Eskom is expected to submit an application to energy regulator Nersa for an average tariff increase of 15% per year for the next three years.

The application has already been sent to National Treasury and the South African Local Government Association (Salga) for comment, as the law prescribes.

Moneyweb has seen the application.

The increase would be over and above the increases required to liquidate the R32.7 billion Nersa earlier awarded to Eskom to compensate it for lower than expected sales and higher than expected costs in previous years. This was done in terms of the regulatory clearing account (RCA) methodology.

If the RCA award is recovered over the same three years that the tariff application covers, and if Eskom’s application is successful, consumers could pay about 20% more for electricity in 2019/20, and not much less in the two subsequent years, says economist Mike Schüssler.

He adds that this would add almost one percentage point to inflation and further decrease the spending power of struggling South African consumers. The Reserve Bank would not lower interest rates due to the inflationary effect, and any economic recovery would be unlikely.

Nersa has in the past consistently awarded Eskom substantially less than it has applied for. The tariff application is essentially for the recovery of its prudently incurred cost plus a reasonable return from tariffs, and the basic decision is for allowable revenue.

In a second phase, Nersa approves the specific tariffs that will apply to every customer group through which Eskom would recover the revenue.

For 2018/19, Nersa reduced Eskom’s allowable revenue to R190 billion from the previous year’s R205 billion. Eskom is taking this decision on review in the High Court. No court date has been set.

The utility is now applying for R219 billion in 2019/20, R252 billion in 2020/21 and R291 billion in 2021/22.

Eskom says its application provides for the phasing in of return on assets “to ensure that a significant portion of the interest cost and repayment costs are covered over the three-year period.”

It illustrates the provision for debt repayment in the following table:

Source: Eskom

Eskom states that the main factors contributing to the sharp increase in the revenue requirement over the three years are outside of its control. “The two key elements that contribute to this are the increase in debt service costs and IPP [Independent Power Producers] costs … ”

Projects up to round 4.5 of the department of Energy’s renewable energy IPP programme have been included in the cost calculations.

The period will see Eskom’s debt repayments almost double from R53 billion in the current financial year to R101 billion in 2021/22, growing at an annual compound growth rate (CAGR) of 24.1%.

The cost of buying electricity from independent power producers grows at a CAGR of 16.4% from R27 billion in 2018/19 to R42 billion in 2021/22.

Operational cost grows by a CAGR of 7% over the same period, and primary energy by 12.6%.

Despite the fact that it is on the verge of concluding a wage agreement that provides for an increase to bargaining unit staff of 7.5% in the current year plus a R10 000 signing bonus, and 7% in the next two years, Eskom states that its employee cost will increase by less than the inflation rate (currently 5.1%). This will be achieved by reducing staff numbers, it says.

Asset base revalued

The regulatory asset base (asset register) has been revalued at R1 288 billion as of April 1, 2016. This forms the basis for the calculation of the return on assets and depreciation costs in the application. The 2018/19 tariff determination was based on a regulatory asset base value of R702 billion (R586 million less).

And despite the fact that it has failed to grow its sales volumes, which are currently at 2007 levels, Eskom in its application provides for an increase of 1.31% in sales volumes in 2019/20, 0.32% in 2020/21 and 0.97% in 2021/2022.

Eskom says these numbers could be revised according to the latest available data before Nersa makes its final decision about the application.

Its application is, among other things, based on assumed GDP growth of 1.5% this year, 2.1% next year, 2.4% in 2020, 2.8% in 2021 and 3.3% in 2022.

Eskom is expected to submit the application, together with the comments from treasury and Salga, within days. Nersa will invite written submissions and hold public hearings, and is expected to make a decision in December.

The new tariffs will take effect on April 1, 2019 for Eskom’s direct customers and on July 1 for consumers supplied by municipalities.

Eskom’s revenue application:

Source: Eskom

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The tighter you squeeze Eskom, the more revenue you will lose (every single normal light fitting in my house now has LED bulbs and I’ll find other ways to cut back), and the more of the economy you will kill.

Consumers will have no choice but to spend less on electricity in volume. The mess is bust.bust . Look at the debt! And retrenchment of staff…not happening in an election year. ANC management at its best…hopeless!

My memory might be failing me, but didn’t Eskom approve above inflation salary increases after the minister said that there would be none?

Your memory of recent events is indeed failing you. Eskom said there will be no increase, workers went on strike (even Solidariteit) and the minister instructed Eskom to negotiate with the unions, after load shedding happened.

The article supports what I said and not what you said. Where does the article say the minister said there will be no increase?

So a bankrupt SOE negotiates a three year deal – year one a 7.5% increase and a 7% increase during years two and three with a “bonus” of R10 000 after tax (as if!!!) & no action to be taken against all those who destroyed our capital equipment during the strike – and we get to pay for it.

Forget “global risk off trade” as the reason for the ZAR collapsing – just look at the economic fundamentals of this deal and traders who understand the ZAR are selling as a result.

So sad that this is the “impact” CR’s new dawn appears to be having.

Close Eskom
Close Eskom
Close Eskom
Close Eskom
Close Eskom
Close Eskom
Close Eskom
Close Eskom
Close Eskom
Close Eskom

In the mean time look at your accounts, they have increased our base costs, more than doubled in some areas.

They have just introduced a basic fee on all prepaid meters, assuming 9 million prepaid meters at R 130 per month, another quick R 1.17 Billion…

Whilst they have everyone focusing on the tariff, whilst the kWh charged is 16 % and the rest of the bill is 84% in some cases. I have put in Solar generators Grid tied and Off gird at all our places using electricity. Fixed Unit cost ranging from R 62 cents and R1.50 for the next 25 years.

Obviously the % of base cost will differ from consumer type and application.

Unfortunately they have many ways to “skin the cat”. They will start charging you for using the sun!!

More consumers will default on their payments and looting of electricity will not stop.

Eskom has taken over from the Reserve Bank in the setting of monetary policy. Eskom drains the liquidity from the economy, causing businesses to fail, rising unemployment, an imploding economy, declining property values, and a risk for the banking system.

The economy will not recover under Eskom. Privatize Eskom and give the power over monetary policy back to the Reserve Bank.

Really?? We the consumer aren’t idiots. The corrupt ESKOM will DEMAND these increases only to be back June 2019 “complaining” that they’re experiencing “budget problems”. I dare Moneyweb to send a Q&A to Pravin Gordhan and Pres Cyril Ramaphosa i.e. Why don’t you sell ESKOM in the interest of the South Africa Economy? What are you doing about the blatant theft of electricity in the townships by those who aren’t prepared to pay? Why don’t you cut the workforce of ESKOM in half? Why do you allow municipalities/metro’s to enrich themselves from a basic right of the consumer, electricity? What are you doing about municipalities/metros who aren’t settling the bill of Eskom? Why do you still collect VAT from the ordinary consumer on electricity whereas businesses/farmers, etc., have the right the re-claim the VAT? Why do you allow the Mangaung Metro to collect DOUBLE payment on electricity for the months of 1 June – 31 August as a “winter tariff due to the province being the coldest” when it’s a well-known fact that 8 other provinces are also experiencing winter but they don’t collect double electricity payment? We, the PAYING consumer are BROKE and had been pushed beyond limits by an inept corrupt Government. The consumer will not be a position to pay the exorbitant electricity bills of the municipality/metro who’s only enriching themselves.

Presure should be put on ESKOM to reduce it’s bloated staff compliment.

Not going to happen-its election time in 8 months. 5 more years of stealing by the ANC required. No retrenchments. The poor CEO was publicly humiliated by Comrade Pravin-CEO said no more money-he looked at the Rand numbers-but the Comrade said pay-look at the numbers for the Party for the election.

Buying votes again…ANC style!!

Retrench the useless workers immediately or sink this country! That is the choice Eskom!

Here is an extract from a BD article this morning.
“The power utility also has to pay workers R10,000 in one-off bonuses within 48 hours of signing the deal.
Numsa’s general secretary said in a statement issued on Thursday that workers faced “extreme provocation” during the negotiations.
“We thank our members for demonstrating militant discipline in the face of extreme provocation by the employer. We started at 0% and thanks to your efforts, we have secured an increase,” he said.”
Extreme provocation ? Please enlighten us . . . .
Pravin starts off by saying they can offer no increase and it ends up with a multi year increase way above inflation and an AFTER TAX bonus of R10,000 for every employee. I think it is pretty clear from this debacle as to who is running the country (into the ground). Forgive me but isn’t a bonus something given for excellent work ? This is not a bonus, it is a ransom.
The consequences of this will be severe going forward.

Dear Boss: I have a car I can’t afford, a drug and gambling problem, many personal loans, a very expensive girl-friend, who is allergic to everything except caviar and I like Italian shoes. I would also ike most afternoons off, that seems reasonable? Please can I also have a raise of 15% p.a. for the next 3 years. I’m sure you understand this isn’t my fault. Thanks

Don’t forget you need to bonus to return to work! At least R10,000.00 after tax

Now we all know exactly who will be paying for the generous increases and bonuses agreed to with the trade unions! Effectively the ratepayer will be funding the ANC vote. Appalling staff levels need to be addressed and costs will decline dramatically. I would suggest better administration but that might be a step to far.

VERY CLEVER timing of Eskom to ask now for tariff increases!

They already “soften up” the SA public the past few months with news concerning their financial woes (with their warning: if Eskom fails = the country will fail), and strikes, which drew wide-scale public attention.

So, outside your rolled up car window at a traffic-intersection, stands this poor, destitute kid Eishkom, with snot running down the nose. Certainly you will be more inclined to help out 😉

(My Heat Pump for the geyser installed 5 yrs ago, is even going to be more worth the long-term saving, it seems)

If u think Eskom is “very clever” you have a screw loose.

Privatize, privatize, privatize – it’s the only solution.

ANC/EFF’s policy is to nationalize everything….so we need another solution.

Do you believe that in case of a privatised Eskom:
– the workers would not strike just because they are not allowed?
– workers would accept below inflation salary increase?
– the company could collect money from the defaulting municipalities?
– the government would not demand 20-30% BEE ownership?
– there would not be useless AA appointment requirements?

Would you buy shares in the privatised Eskom?

I think you touch on a valid point. Telkom not exactly a great success story with exemplary customer service levels.

South Africa needs to find a way to reduce the cost drastically to install Solar panels, heat pumps etc. One Central Company to manufacture distribute to Black companies to install. Most homes and Companies should harness this energy which is free to Sunny South Africa

Wally Stowe

We seem to need a certain deceased lady who was not into turning! I love the R10,000 bonus for the poor, traumatised workers. I’ve been employed at the same place for 15 years now, and have only received an above-inflation increase once, and that was only because an allowance that had not been adjusted for 6 or so years finally was adjusted up. I’m severely traumatised by now.

Bunch of dummies, the problem is not the tariff it is your expenses. Cut 50% of the labor force and you can give us a rebate.

Fix the cause and the problem will go away.

I reckon they have to find the money somewhere to pay for those ridiculous wage increases and bonuses – so why not whip the taxpayers again? We’ve got bottomless pockets – or so they and all the other SOE’s seem to think – let’s not forget about the airlines. . . 🙁

So at say CapenTown 222c/kWh the three increases end up at 337c. With batteries running at about 220c/kWh effective lifetime cost and the solar energy to fill the battery about 90c, off-grid is becoming realistic. I have not figured the fixed fees onto that

I am always a bit puzzled by this whole charade. At the end the consumer will pay, whether it is through higher electricity rates or through tax as part of a bail-out.

User pay principle probably more fair, but teh problem is not on the credit side of the P&L it is teh debits that are too high!

Oh yes and also the fact that they cannot collect most of their debtors book is not helpful

This is the massive elephant in the room that we keep on missing. It is the economy stupid. South Africa’s economy is shrinking and unless we start to figure out what will drive it going foward it will shrink at an increasing rate. Budgetting for 3.3% GDP growth is believing in make believe.

“And despite the fact that it has failed to grow its sales volumes, which are currently at 2007 levels, Eskom in its application provides for an increase of 1.31% in sales volumes in 2019/20, 0.32% in 2020/21 and 0.97% in 2021/2022.

Its application is, among other things, based on assumed GDP growth of 1.5% this year, 2.1% next year, 2.4% in 2020, 2.8% in 2021 and 3.3% in 2022.”

Three times inflation…and the increases never stops…the debt and interest should be paid by the looters

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