NERSA gets countrywide thumbs down on Eskom hikes – ParlyReport

Hearings preparatory to NERSA decision…..

nersa3National Energy Regulator (NERSA) spokespersons have been particularly busy making non-committal statements as a result of hearings being held in all provinces until the end of January to allow members of the public and other organisations to give their views on Eskom’s third multi-price annual determination application for a 16% increase per year for the next five years.

The trade unions have been particularly vocal in their opposition to electricity tariff increases fearing job losses and against any additional add-ons by smaller municipalities to prices. Countrywide protests and strikes have been promised. Eskom has responded, with CEO Brian Dames stating that the poor would be subsidised by Eskom but middle and upper class incomes would have to pay in full “to keep the country going”.

Initial presentations made to Parly

These developments follow Eskom’s presentations to Parliament before it closed for the New Year recess. In general, department of energy (DOE) appears to have conceded in principal to the application, no statements coming from minister of public enterprises, Malusi Gigaba, or minister of energy, Dipuo Peters, to indicate opinions to the contrary.

In Cape Town, at the Cape Town International Convention Centre, civil society groups and trade union groups such the National Union of Metalworkers promised protests. National Union of Mineworkers said they will follow all hearings throughout the country and protest accordingly.

Cape town protests

Congress of South Africa Trade Unions said that without doubt the increases would result in job losses. “Push up prices of basic commodities, including food and with inflation increasing, the reserve bank will raise their repo rate and thus further pushing workers and the poor deeper in to poverty including small and medium size enterprises”, said COSATU’s Mike Louw.

Prof. Brian Kantor previously of UCT and David Holland, former MD of Credit Suisse, methodically picked to pieces Eskom financial director Paul O’Flaherty’s balance sheet justification for the electricity hikes, bringing audience applause.

Holland invited the Eskom executives to “sit down with us” and said that they should all run through the pricing facts and experience scenarios with power utilities abroad. “With appropriate control of costs”, he said, “the revenue generated will deliver enough cash from operations to support a balance sheet with comparatively high debt ratios – given the essentially low risk nature of its business. The problem is that Eskom is trying to fund its growth with an unnecessarily small reliance on debt.”

brian kantorProf. Kantor said, “If Eskom gets its way with Nersa it will truly become one of the great companies of the world,” echoing queries from MPs before Parliament closed. Kantor said, “Eskom could be possessed of a balance sheet that would be the envy of the world, especially of the world of public utilities. Eskom’s debt to equity ratio is falling and by 2018 it will have assets that at replacement costs would have a value of over R1trillion, more than three times it’s R300bn of debt.”

“The way to fund new electricity is not through higher charges, but through debt”, he concluded. “The bottom line is that Eskom’s balance sheet objectives are too ambitious and unaltered will be dangerous to the health of the SA economy.”

PE disruptions

NERSA hearings in Ports Elizabeth were disrupted by union activists and a future date for these is to be announced, said a NERSA spokesperson.

Durban not much better

In Kwa-Zulu Natal, hearings were preceded by protest meetings outside the International Convention Centre in Durban and in the hearings NERSA was told by the South African Cane Growers Association that the mooted increase was “higher than we can possibly digest”.

The association said the increases as they were would put 35,000 jobs at risk and could result in the closure of four sugar mills. With sugar cane being the province’s biggest crop, they said, electricity makes up 15.5% of the production costs of irrigated cane growers. They were already struggling to remain profitable in the face of increased fuel and fertiliser costs, drought and flat cane prices and the situation would become untenable for growers, they said.

The question of smaller municipality add-ons arose when Umtshezi municipality said Eskom’s proposed new tariffs, plus their 2%-3% increase on electricity levied by the municipality, would put the viability of small businesses in their area doubt. This area had attracted several factories, including Masonite Africa, Nestle, Eskort Bacon and Clover and would lead to major funding and operating problems for local government.

NERSA hearings now move to Johannesburg as Parliament re-assembles, which look so heavily booked with submissions that hearings might hardly fit into two days.

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