Media reports indicate that the National Energy Regulator (Nersa) is considering options to make electricity prices ‘cost-reflective’ by 2018. This means that consumers will not only face inflation-related increases, but will also be funding Eskom’s infrastructure expansion. This is in direct contradiction to Nersa’s commitment to the portfolio committee on energy earlier this month that they will adopt the DA’s proposal for future electricity tariff increases to be inflation-related.
Eskom’s chief finance officer, Paul O’Flaherty, was adamant that Eskom had to raise the cash it requires for new build programmes (at massive capital outlay) from the administered electricity price. ‘Who is going to pay for it, if it is not in the tariff?’ O'Flaherty asked at yesterday’s portfolio committee meeting in response to my questions. He claimed that at the moment the average price per kilowatt hour was 60c, but that it needed to be 90c to cover the cost of Eskom's expansion programme and interest of about 10% on borrowings set to reach R350 billion by 2015.
The DA believes that Eskom needs to renegotiate its contracts with members of the Energy Intensive Users Group (EIUG) rather than making consumers pay for its legacy of poor planning. The median consumer actually pays nowhere near 60c/KWh. Most of us pay around 87c/KWh, which is becoming increasingly unaffordable unless you earn an O’Flaherty-type salary of R5.5m per annum.
More importantly, as the DA has repeatedly proposed, Eskom should pursue alternative financing models through the issuing of government-backed Eskom bonds on international stock markets.
Electricity is a critical input for small and medium sized businesses – the most labour-intensive sector in South Africa. Making it unaffordable therefore directly kills jobs and saps disposable income from already-stretched households.
Eskom’s alleged (leaked) request to Nersa for a 14.6% tariff hike over the next five years includes the full cost of planned capital expenditure for new electricity generation capacity (they want to raise R1 trillion). The cost for new coal-fired power stations Medupi and Kusile alone is R91.2bn and R118.5bn respectively, and reports suggest that Medupi is facing cost over-runs which will leave the final bill at around R150bn.
The DA expects that Nersa will do the right thing and unequivocally reject Eskom’s 14.6% price-hike request. South Africa’s electricity crisis will simply not be solved by placing a further financial burden on small businesses and ordinary consumers.