The Energy Intensive Users Group (EIUG) on Monday turned down Eskom’s request for a 15 percent tariff increase over the next three years, saying the power utility’s business model needed to be re-looked, while Econometrix chief economist Dr Azar Jammine warned the hike could plunge the struggling South African economy into a tailspin.
Eskom chief executive Phakamani Hadebe told the National Energy Regulator SA (Nersa) at the start of nationwide public hearings in Cape Town yesterday, that the utility
was on the edge of a financial meltdown.
“Eskom has requested a 15 percent tariff increase over the next three years, this looks steep. We will agree, but Eskom’s finances have reached a stage where Eskom, alone, cannot solve all the challenges it is facing.”
He noted that there had been cost-cutting initiatives to help improve the financial situation, but stressed that Eskom had a balance sheet problem.
“The biggest challenge is the balance sheet of Eskom, which deteriorated over time,” he said.
Debt which stood at R380 billion at the beginning of last year has since grown to more than R419bn.
Hadebe warned that Eskom was close to a debt trap and apologised for the problems that the utility has had, saying: “Eskom deserves to apologise. It is compelled to apologise to South Africans for bringing these challenges. They were avoidable.
“All these challenges, load shedding, were built over time. But turning around an institution facing challenges takes time.”
EIUG programme director Shaul Nel said the lobby group wanted Nersa to reject Eskom’s request.
“Nersa must only allow inflation-linked increases. Nersa needs to balance the needs of consumers with Eskom’s requirements,” said Nel.
“It’s clear Eskom’s business model must be re-examined. It is our view that Eskom must just be run for cash to service debt while IPPs (Independent Power Producers) provide future generation development.”
Ronald Chauke from Outa said: “Outa cannot accept such high tariff hikes at this stage, despite the fact that Eskom is broke.
“At best, we propose that Nersa should not allow Eskom to exceed CPI, which is around the 5 percent mark. Eskom should find savings by reducing the headcount and staff costs, along with returning to lower primary energy costs by undoing the inflated and often corrupt contracts entered into during the Jacob Zuma era.”
Jammine said he was not totally convinced that the 15 percent tariff increase, if granted, would help to resolve Eskom’s financial crisis.
He said a direct impact of the increase could result in consumers paying more for electricity, while the indirect impact could see a slowdown in economic activity.
“An increase could lead to less manufacturing and mining activities and less demand for electricity in general,” said Jammine.
“People will cut back on the usage of electricity than they are currently doing. They might try to switch to alternative sources of energy.”
Jammine warned that a sharp tariff increase could backfire and lead to Eskom incurring lower revenues than anticipated.
Eskom needed to come up with other alternatives to address its financial challenges than to try and increase tariffs, he said.
“If they do increase tariffs in the way they are threatening to do, that could lead to overall economic growth decline.”