Public Enterprises Minister Barbara Hogan warned on Tuesday that Eskom's build programme, which was viewed as central to the South African government's mitigating response to the prevailing economic crisis, could be curtailed and/or rephased, unless funding shortfalls could be covered by either additional government support, or through increased tariffs.

Speaking in the National Assembly, she stressed that, in the context of the country's first recession in 17 years, it was "absolutely paramount that the Eskom capital expenditure programme continue unabated".

The power utility was said to be pressing ahead with a capacity expansion programme, with particular emphasis being placed on the bringing on-stream of the two new 4 000-MW-plus base-load coal-fired power stations, Medupi and Kusile.

Eskom was also still planning to spend a "nominal" R385-billion over the five years which began in the 2008/9 financial year, while the programme in its entirety could double Eskom's generating capacity to 80 000 MW by 2026, "with a projected spend in excess of R1-trillion".

But the funding of the capital expenditure programme remained "a challenge, especially in these times of reduced debt access in the global markets, in the context of an electricity price that does not accurately reflect the cost of production".

Eskom was currently expecting to spend R87-billion on capital projects in 2009/10, R104-billion in 2010/11, and R84-billion in 2011/12. But it was also expecting funding shortfalls of R25,7-billion this financial year, R52,6-billion in 2010/11 and R54,3-billion in the following year.

Hogan argued that the price of electricity was not reflective of true production costs and that, since 1990, Eskom had foregone over R148-billion in nominal revenue, which had placed strain on its financial reserves.

It had reached a point whereby Eskom was no longer able to meet its expansion requirements without significant borrowings, or financial injection from the State.

AT ODDS OVER TARIFFS

Hogan again came out in support, therefore, of Eskom's request to the National Energy Regulator of South Africa (Nersa) for an "interim" 34% price increase, in order to cover "operational expenditure" alone. Nersa would pronounce on the matter on Thursday, June 25.

This appeared to place her at odds with her counterpart, South Africa's new Energy Minister, Dipuo Peters, who, speaking in Parliament earlier indicated that she did not agree that tariffs "must rise rapidly".

"It is our view that this will lead to unintended consequences, not least of which, would be an adverse economic impact in the face of the recession we are currently experiencing," Peters argued.

She reported that her department, which was in the process of being split off from that of minerals, has started a process to enable the creation of a "cushion for the indigent".

By contrast, Hogan stressed the need for the country to move towards a cost-reflective tariff regime, as outlined in the electricity pricing policy, approved by Cabinet in December 2008.

"Any shortfall in funding that is not provided for, either by additional government support or through its electricity tariffs, will result in the curtailment and/or rephasing of build programme projects," Hogan warned.