Tag Archive | electricity tariffs

DTI gives warning on investment climate

High administered prices a threat…

42X90693In an apparent warning to the economic cluster, a deputy DG at department of trade and industry (DTI), Garth Strachan, warned that South Africa was reaching “a tipping point” where administered prices, either levied or taxed by the various state departments, were so high that it was making the cost of doing business in South Africa totally impractical.

 

There was neither an attractive climate for investors because of high state administered prices, he said, nor did it make any easier DTI’s developmental programme in support of the NDP and attracting investors.

In a frank presentation to the portfolio committee on trade and industry, he qualified DTI’s position during his candid commentary with the caveat that as far as the regulation of administered prices were concerned, such as electricity, port and rail freight charges, road transport costs and water tariffs, that these were not the core competencies of DTI although they were adversely affecting DTI’s current IPAP 6.

Undermining investment climate

He noted later in his talk that in the successive implementation of various IPAPs, including the current industrial plan, DTI had found that administered prices constituted a total impediment to economic development.   In fact, now in 2014, they were providing a “serious economic shock”, as he put it, to the viability and competitiveness of the manufacturing sector.

Garth Strachan commented that the addition of carbon tax could push South Africa to the ‘tipping point’, unless the proposals were with “carefully calibrated policy interventions.”

As far as electricity was concerned, it was DTI’s view that the actual problem lay in the funding structures of local government, especially where no allowance was made for infrastructure upgrading and maintenance. Water shutdowns were also an increasing problem, he said.

He told parliamentarians that in one instance a global investor had experienced 140 electricity and water shutdowns. He did not indicate over what period.

International comparisons

He said that on electricity tariffs, whereas in 2009 when compared to China, the USA, Canada/Quebec, Abu Dhabi, Kazakhstan, India and Russia to give a fair geographic spread, South Africa had been with a group that had the lowest in prices, it now had the “gold medal” for being the highest of all and by 2020 the situation would be exacerbated unless something dramatic took place.

Strachan said that in the World Bank Report of 2013, SA port charges were amongst the highest in the world; container charges being 710% more than the global norm and automotive cargoes costing a premium of 874% more than the global norm. This detrimental fact was compounded by port and rail freight inefficiencies to local destinations.

He told parliamentarians that in DTI’s view it was extraordinary that exports were virtually subsiding raw material exports such as iron and coal.  In the case of coal, this was 50% below the global norm and iron ore approximately 10%, according to 2012 figures, these being the latest DTI could get.

This led, Strachan said, to the unfortunate situation where the country exported iron ore at a net loss to the country but imported girders, cranes and containers, for example, at possibly the highest in the world.  It was impractical to have subsidies passed on to exporters of primary products penalising importers of necessary needs, he said.

On carbon tax, he dismissed any “one size fits all” programme as contributing to the overall problem by making things worse and on climate change generally, he said that DTI was already working towards the protocols agreed by South Africa “through a range of measures to support energy efficient systems and investment in energy.”    These were part of DTI’s manufacturing enhancement programme, he noted.

He said there should be a shift in pricing “in favour of less carbon intensive sectors which are more labour intensive and value adding”. He quoted particularly steel, polymers and aluminium, which he said should be considerably below import parity levels.

Nullifying NDP objectives

Garth Strachan concluded that with manufacturers already going out of business, the issue of administered prices was probably the most important issue facing South Africa at the moment in the search to create more jobs.

Parliamentarians noted with concern what DDG Strachan had illustrated in his review. Many called for a joint portfolio meeting on the subject with public enterprises, transport and energy, despite the subject of administered prices also not being a core function of the trade and industry committee. For example, it was noted, they had no parliamentary right to influence such bodies as Transnet and Eskom, nor deal with treasury on tax and tariffs.

 

Posted in Cabinet,Presidential, Electricity, Facebook and Twitter, Finance, economic, Labour, LinkedIn, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

NERSA reports on an anxious year in energy

Unlicensed pipeline operations a problem….

Phindile NzimandeCommenting that the petroleum and gas industry did not seem to take licensing particularly seriously but the electricity industry did, Phindile Nzimande, CEO of the National Energy Regulator (NERSA), gave a characteristically outspoken report to the parliamentary committee on energy on NERSA’s strategic and plan until 2016.

She noted that  NERSA had investigated sixty seven suspected unlicensed activities in petroleum pipeline activity, only four of which were found to not require a licence. Thirteen petroleum storage licences were revoked.

NERSA not changing plans

Nzimande said that NERSA found no reason to alter their five-year plan as originally submitted in 2012 and NERSA would continue with its mandate of transparency, neutrality, predictability and independence. It has been a busy year, she said, not the least of which was the extraordinary amount of work generated by Eskom tariff application, the national hearings process and the time involved in decision making.

In the area of electricity generally, 183 municipal and private distributor tariffs were given approval and 47 energy generation licences granted. 9 distribution licences for connection facilities between Eskom and an independent power producer (IPP) were also granted.

Sasol back to listed tariff next year

In piped gas, Nzimande told parliamentarians that the maximum prices for such were dealt with in regard to Sasol, this being the last year of the “maximum price” arrangement. In petroleum pipelines, the Transnet annual increase was set at 8.53%, again with much controversy, and decisions were made on 60 storage and loading facilities.

There was still a major lack of credible gas anchor clients in piped gas, Nzimande said, nor was there an established and regular supply chain and serious competition, resulting in high prices for the poor. NERSA had much work to do in this area, she said, as far as compliance monitoring and enforcement was concerned.

Costly multi-product line

In the area of petroleum pipelines, Nzimande said the “prudency” investigation into the cost of the multi product Durban/Gauteng pipeline was a major undertaking and NERSA was also involved with Transnet on the issue of high port charges which had become a national issue.
The security of supply of petroleum to inland areas was also a matter of deep concern, Nzimande said, and NERSA was “working with stakeholders”. When asked how NERSA was monitoring this she said the matter was very much up to the investors concerned but she was aware that department of energy “was grappling with the issue” and NERSA was closely following the matter which had to be taken in to consideration on pricing matters.

Local government problems

On tariffs generally, Nzimande said a major issue facing NERSA was the legal issue of regulatory relationships with municipalities and their powers in respect of enforcing licensing and pricing structures. This was to be resolved shortly.

When asked if Eskom would be allowed to re-visit the issue of their tariff structure finally allowed and appeal, Nzimande said that she eskom logocould not say that that such a move could be excluded as a legal part of the multi-year price determination process. The chair excused her for answering questions on the Alstrom and Hitachi legal wrangle on the Medupi power plant currently under construction by Eskom but she acknowledged that NERSA was aware of Eskom’s problems and financing issues.

NERSA and NNER?

When asked why NERSA and the structures of nuclear regulatory matters were not combined into one regulatory body, Nzimande replied that international agreements and the structure of the nuclear global industry was specific on this issue and required specific nuclear regulators with specific mandates for their own countries to be established. The work and relationships of a nuclear regulatory authority were very different, she said.

She agreed with complaints regarding difficulties in the petroleum storage area and confirmed that the regulations may have to be re-written in this regard. She was specific that NERSA would look into the issue of tariffs for storage, since one member complained that the current high cost structures could well be acting as a disincentive to investment.

Associated articles archived
http://parlyreportsa.co.za//energy/durbangauteng-pipeline-still-three-years-behind/
http://parlyreportsa.co.za//energy/nersa-gets-countrywide-thumbs-down-to-eskom-increases/

Posted in Electricity, Energy, Enviro,Water, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Electricity tariffs: Billiton tells its side

Benefits amounted to massive subsidy….

Mhkwanazi BillitonThe cumulative benefit to Eskom as a result of BHP Billiton buying out Eskom’s excess capacity of electricity generated over the 14 years until the recent 2008 crisis amounted to a figure in excess of R26bn, Dr Xolani Mkhwanazi, chairman of the South African company, told parliamentarians of the trade and industry committee.

What is more, he said, when Eskom’s near collapse occurred in January that year due to heavy rains, flooded collieries and low coal supplies, BHP Billiton mothballed for some time its Bayside aluminium plant with no compensation and with the purpose in mind of preventing further national blackouts.

Protecting grid together

The company now works, he said, on an ongoing basis with Eskom, both managing and protecting the grid by adjusting demand from its Bayside and Hillside aluminium smelters. No compensation is asked for

In answer to MPs further questions on this subject, he said, “We know we are operating in an environment where there are currently conditions of restraint that have to be exercised.”   He repeated again that such restraints were carried out as a joint exercise to protect the grid as a whole.

These facts were made public to parliamentarians this week after months of questioning by MPs during numerous portfolio committee meetings at which Eskom said it could not discuss the special rates negotiated with large power users, known as NPAs or negotiated power agreements, particularly that which had been negotiated some years ago with BHP Billiton.

Shielding Billiton

Dr Mkhwanazi confirmed that agreements in the past between BHP Billiton and Eskom were related to the international price of aluminium to the Rand/Dollar exchange rate, thus shielding BHP Billiton from local market related problems since the formula when applied meant that in times of high aluminium on a weak rand, lower prices are paid for power.

It had to be borne in mind that such agreements were conducted when Eskom was in highly favourable reserve margin situation, he said. A new NPA has now been struck with BHP Billiton, Dr Mkhwanazi confirmed under questioning.

When asked by opposition ID member Lance Greyling from the energy portfolio committee, who attended the meeting as a guest MP, whether under the new tariff arrangements the contract was still linked as before on a risk sharing basis based on the global price of aluminium, thus shielding BHP Billiton, Dr Mkhwanazi at first did not answer the question

When pushed again on the subject in a second round of questioning, Dr Mkhwanazi replied, “Yes”.

Why Mozambique?

When asked why BHP Billiton had gone into aluminium smelting at Mozal in  Mozambique when Richards Bay appeared undercapitalized at one point, Dr Mkhwanazi pointed to the very advantageous incentives offered by that country some years shortly after peace had returned to the territory.

Lucas Msimanga, asset president, BHP Billiton Aluminium, said that the group’s operations covered three main resources – coal, aluminium and manganese.

Manganese was centred around Hotazel in the Northern Cape and the larger reserves of the Mamwatan open-cut and Wessels underground operations, both in the Kalahari.

It was a fact that 80% of the world’s high grades of manganese existed in South Africa but, said Msimanga, both were in remote situations thus involving high transport cost. Consequently, said Msimanga South Africa had about only 11% of the world market based on pricing factors.

BHP Billiton had five collieries and supplied 25% of Eskom’s coal.

Aluminium eats electricity

On aluminium operations, he said the group was the eighth largest aluminium producer in the world and the two smelters were originally constructed to “absorb the excess generation capacity of Eskom in the late 1980s when Eskom had a reserve margin of 40%.”

Msimanga reminded parliamentarians that aluminium was little more than solid electricity, the furnaces taking calcined petroleum coke, mixed with molten pitch to 1100ºC over 21 days, the resulted aluminium anodes going through electrolytic reduction processing “pots” for a further 27 days. To be in aluminium industry, he said, you were deep into the energy industry, bearing in mind BHP Billiton was also a coal producer.

In manganese, the M14 BHP Billiton furnace was probably the largest in the world and exercises currently being carried using CO gas to the onsite power plant raising self-sufficiency in energy was an important exercise at present being conducted. This was aimed at a hoped for reduction in CO2 footprint.

Associated articles archived
http://parlyreportsa.co.za//energy/new-energy-legislation-is-lined-up-for-next-two-years/
http://parlyreportsa.co.za//energy/dpe-reports-on-eskom-and-it-utilities-to-parliament/
http://parlyreportsa.co.za//bee/eskom-black-owned-coal-mining/

Posted in Electricity, Energy, Enviro,Water, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Eskom- the elephant in the room…

For weeks now Parliament has been listening to a litany of warnings from Brian Dames, CEO of Eskom, and Paul O’Flaherty, financial eskom logodirector, on the necessity to maintain a rock solid balance sheet to the outside world, particularly the banking and loan sector, in order to secure and maintain loans by Eskom subject to favourable considerations by the rating agencies.

This is important, they say, in order to ensure electricity rates at a revised figure, carved down from what was originally asked for to a much lesser 16% increase per year for five years and which is now proposed to the national energy regulator (NERSA), supported by the department of energy (DOE).

The whole application is termed the third of the multi-year price determinations known as (MYPD(3), given the love of acronyms in the energy world but not so loved it seems during the hearings being conducted by NERSA around the country.

In fact, the deep distrust of Eskom and the possibility that they are not working in the national interest of the consumer but rather their own has become almost a theme of those taking the podium to express their displeasure at constantly increasing electricity prices.

It all goes back to a simple question asked by an MP in Parliament during the explanation given by Eskom to the energy portfolio committee on the reasons for their MYPD(3) application.   “Why”, asked the MP,  “did Eskom on the one hand try and run its business like a commercial giant when in fact it is a state utility providing a service to the consumer and presumably not trying to make a profit at the expense of the consumer?”

The retort from Eskom was that any failure to get loans without a strong balance sheet would result in even higher electricity rates. But is this really true many have asked during the current NERSA hearings.  Is it a question of credit agency ratings or the need to show profits that is driving the Eskom bid for 16% increase at least per year?

Energy Intensive Users Group who are responsible for 44% of electricity consumption say that in their calculations, Eskom needs only 10% at most.

In Cape Town, National Union of Miners said succinctly, “Consumers should not be punished for policies of the past and NUM questioned whether a “R46bn shareholder return was justifiable for a state company.”

In reality, there is no doubt that Eskom does not consider itself a state utility, or at least it certainly does not act like one. A reading of their website quickly clears up any doubt on that issue, the language of the site painting a solid picture of competence and financial strength to the world in general.

In fact the financial problem for the country is what can the foundries that are going insolvent, the struggling businesses facing imponderables and the ordinary citizen facing unheard of monthly municipal accounts, do about an organisation determined to make the kind of profits that give good sleep to bank managers only.

Quite clearly, this scenario will have to be played out before Budget day.

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NA smallWith Parliament now open, parliamentarians already at work in some of the committees and training in progress for the new MPs, the State of Nation Address is now scheduled for 14 February, followed by a week of debate, the President’s response being on the 21 February and the Budget set for 27 February.

Parliament of South Africa 20.12.2012

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Posted in Electricity, Energy, Finance, economic0 Comments

Major metros clarify picture on electricity tariffs

Metros confirm adherence to NERSA rules….

In an important meeting with the portfolio committee on trade and industry under the chairmanship of Bheki Radebe, South African Local Government Association (SALGA) gave its views on recent and forthcoming hikes on electricity tariffs and confirmed that  none of the major metros, constituting more than 80% of municipal electricity distribution, ever imposed tariffs that had not been approved by NERSA, the regulator.

Although it was acknowledged that there could be isolated cases of smaller municipalities not complying with this principle, Mthobeli Kolisa, executive director, municipal infrastructure services, SALGA, said there was an overlap between the provisions of the Electricity Regulation Act dealing specifically with tariffs charged by its licensees and the Municipal Finance Management Act dealing generally with municipal tariffs but any problems and most conflicts were overlooked in the national interest.

NERSA’s word was final, he said.

Local government reports for three major cities

SALGA, with input also from representatives of the eThekwini, Ekurhuleni and Johannesburg Metros, briefed the committee on the breakdown of municipal electricity tariff charges.  When determining the municipal increases, in line with the NERSA guidelines, the municipalities would take into account the costs of bulk purchases, repairs and maintenance, salaries, interest charges and other cost, and then would have to justify their requests for increases to NERSA, Kolisa said for SALGA.

eThekwini municipality said that electricity purchases made up the largest percentage of the budget of the metro.   For a municipality whose electricity purchases constituted 64% of its budget, Eskom would charge a percentage increase of 13.5%.    This would contribute 8.6% to the total average increase of 11%, which was a direct pass-through cost for the municipality.

They said that even if the municipal cost did not go up, the increase would still be 8.6% to the end customer, as a direct result of Eskom’s increase.   As a result of the municipal cost increases, a further 2.4% was added onto the total increase for the year, as a result of the increases in salaries and wages, repairs and maintenance amongst other cost items.

Sticking to the rules, they say

City of Ekurhuleni said that when Eskom was running short on generation capacity, which happened during the winter months of June, July and August, there was a strong signal during peak hours and although it might cause customers to complain, municipalities would not work against the national objective.

They said that an analysis of the Eskom “Megaflex” tariff indicated that energy was 90% of the cost in Ekurhuleni and demand constituted 10%, with the mark-up at zero (as Eskom was the baseline tariff for a municipality). The Tshwane tariff, on the other hand, indicated that energy was 62% of the cost, demand at 38% and mark-up at 9% which was known to be the case..Should Eskom run the lot?

Should Eskom run the lot?

Kolisa commented, in response to a question whether Eskom should distribute all electricity, that cutting municipalities out of the distribution lines and the equation generally would not be feasible.   It was still necessary for them to distribute electricity.

They only, and only they, had the infrastructure in place in their areas, he said, and the suggestion of separate re-distribution zones, or REDS, was an issue of the past.

However, municipalities and metros, said SALGA, faced a generalised critical shortage of skills in the engineering sector and were unable to attract and retain specialist skills, particularly since they also faced competition from private industries.    The idea of “adopt a municipality” inviting participation by industry was now being promoted to re-gain some of the lost territory.

City of Johannesburg explained that Eskom tariffs to municipalities included a 4,17 c/kWh (cents per kilowatt hour) cross subsidy towards Eskom’s residential customers, and a cross subsidy for electrification in Eskom supply areas (3,59 c/kWh) and said that the general idea of one rate or one tariff would not fit all municipalities mainly because of their disparate size, different services and different demographics.

Hope that independents might make common tariffs possible

City of Johannesburg said the government initiative to establish the ISMO system where Eskom and municipal distributors would be treated as peers and all distributors would be purchasing from the ISMO at wholesale rates would make some form of tariff alignment possible.   But this was well into the future.

SALGA said that a tariff design plan was in process by the five main metros which took into consideration the principles of the cost of supply and this co-operation accounted for the current compliance.    Metropolitan distributors and a significant portion of the larger municipal distributors, it was said, were working towards detailed cost-of-supply analysis.

In conclusion, SALGA noted that it might be possible to set a uniform tariff structure but such a move to make it viable would require financing.  Generally, part of the problem, it was said, was that there was a strong need to move towards more advanced technology.

Inevitable coal question

In reference to the control of cost inputs in energy supply, SALGA said it was interesting to note that China relied on coal that it imported at very low cost and countries like South Africa were exporting to China at cheap prices to get their business. Local government could not regulate on such issues as coal exports, which were an issue for debate at Eskom and national level, but SALGA could see perfectly well what some of the problems were.

SALGA finally noted that education campaigns to promote energy efficiency were not as effective in the field as they might be and SALGA would work with the Department of Energy to try to correct this.

Posted in Finance, economic, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry, Uncategorized0 Comments

Eskom prepares for showdown with regulator on tariff increases

Eskom’s CEO Brian Dames still remains tight-lipped on exactly how much the state utility will be asking for in electricity tariff adjustments upwards in its third multi year price determination period (MYPD) application to the National Energy Regulator (Nersa) next month, although an “unofficial” release is circulating that a figure of 14.6% over each year for five years is on the cards.

Confirming that Eskom acknowledged that the cabinet clearly expected “moderation”, the utility says it has “taken on board” the idea that an application for a period longer than the three years under the current MYPD needs to be projected, this suggestion also being made to the minister of energy by the relevant portfolio committee of the department of energy’s budget vote response and it’s presentations on future energy reserves and cost.

However, finance director Paul O’Flaherty, who also addressed the public enterprises committee recently on the subject of financing the current Eskom infrastructure development, has said next month’s MYPD application will also be in the a context of its R340bn investment programme which will attract to Eskom an interest bill of R120-billion over a five-year period.

This five year interest period has by necessity to be brought into the discussions with Nersa, he said, and will mainly account for the need to consider extend the MYPD over a longer period. O’Flaherty referred to the fact that Eskom’s ability to raise the capital and to handle long term debt was inextricably linked to South Africa’s sovereign rating.

 

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Power from Medupi not until late 2013, says minister

coal miningIn answer to a parliamentary question put to him at an energy portfolio committee  meeting before Parliament closed for the Easter recess on Friday, Public Enterprises Minister Malusi Gigaba confirmed that Eskom’s new Medupi coal-fired plant will start supplying power the second half of next year.

In the original plan, the Medupi plant was supposed to come on line late last year but strikes were experienced at the Limpopo plant and certain  “geo-technical, design and construction issues were experienced” , he subsequently said in a written reply.

SAPA has reported that the minister also said, “The design delays were as a result of certain critical civil design factors, which were not concluded timeously enough for construction. The construction delays experienced in the boiler area were attributable to structural steelwork design, manufacturing, logistics and construction.”

Gigaba added that in terms of the contract, “Eskom had relief against the contractor” in terms of delay damages and performance guarantees, among others, but SAPA in its release added that the minister had added that “liability was limited”. This does not seem to have altered the fact that added power supplies are late on schedule.

“Based on the current programme, it is expected that Medupi will begin producing electricity from its first unit in the second half of 2013,” the minister said.

Industry investors are reported as stating that greenfields projects will be delayed unless considerably more guaranteed are supplied on continuous supplies without blackouts in the meanwhile.

Posted in Electricity, Energy, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Eskom is told at the top

Presenting his annual state of the nation address to Parliament, President Zuma said there was an ongoing concern from business and communities about high electricity costs.

“I have asked Eskom to seek options on how the price increase requirement may be reduced over the next few years, in support of economic growth and job creation and give me proposals for consideration,” he said.

Commenting in his speech to the nation that Eskom needs to find ways to slow price increases President Jacob Zuma said, “We need an electricity price path which will ensure that Eskom and the industry remain financially viable and sustainable, but which remains affordable especially for the poor.”

However to achieve sustainability, a pact would be required with all South Africans — including business, labour, municipalities, communities, and all customers and suppliers.

The President said, “We must save electricity. For the next two years, until the Medupi and Kusile power stations come into operation, the electricity system will be very tight.”

To increase energy capacity, government would continue searching for renewable energy sources, especially solar electricity and biofuels as the green economy accord with economic stakeholders was implemented.

But Zuma said that in the meanwhile, “everyone should play a part to avoid load shedding. To date we have installed more than 220,000 solar geysers nationwide.” The government target was one million solar geysers by 2014-2015, Zuma said.

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry0 Comments


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