Business as usual for Eskom has to reach end

19.9% increase unacceptable

THE ENERGY Intensive Users Group (EIUG) on Friday said that Eskom’s application for a 19.9 percent tariff increase was unacceptable and urged National Energy Regulator of South Africa (Nersa) to grant the power utility a Consumer Price Index (CPI) increase.

The EIUG, a non-profit association of energy intensive consumers whose members account for more than 40 percent of the electricity consumed in South Africa, said limiting the tariff increase to CPI would force Eskom to focus on efficiencies “and correcting corporate governance.” This comes amid allegations of poor corporate governance and corruption at the utility. “Thus, we propose a CPI increase for 2018/2019. This would also allow Eskom to improve internal efficiencies, as do private sector players and other state-owned entities faced with similar challenges,” EIUG said.

EIUG said overwhelming reports and disclosures of maladministration, allegations of corruption and governance failures, had affected Eskom’s reputation and must be taken into consideration in the assessment of the application.

Eskom’s present and past executives are likely to feature prominently in a parliamentary inquiry into the utility. The inquiry, which commences this week, is expected to uncover the alleged corruption and failure of governance at Eskom.

EIUG said the 19.9 percent tariff increase would result in the partial or full closure of plant capacity and migration of investment to zones that were more competitive.

EIUG’s members collectively account for more than 20 percent to South Africa’s gross domestic product.

In its submission to Nersa, EIUG said Eskom should immediately engage in internal aggressive cost-cutting as well as address operational inefficiencies and gross irregular expenditure.

EIUG said Eskom’s application for a 19.9 percent tariff increase should be considered against the background of Eskom’s unsustainable business model.

“Eskom’s historic practices lead us to believe that Eskom will not reform and become an efficient entity in the current environment. The pricing model is fundamentally flawed in that Eskom assumes that prices must increase to fund expenses instead of focusing on reducing costs and quantifiably increasing efficiencies,” it said.

EIUG was critical of Eskom’s planning and forecasting. The organisation said it supported “in principle” Eskom’s strategy to sustain and grow sales as well as the steps the utility was taking to stimulate demand. “However, an application for 19.9 percent increase suggests that Eskom does not understand or seek to address the full magnitude of the problem. The only sustainable solution lies in the utility addressing its inefficiencies and changing is business model.

“Eskom must accept the fact that sales will be lower and that they will need to address how they decrease costs and increase sales, rather than simply seeking higher revenue,” the organisation said.

EIUG said, in the medium to long-term, Eskom should restructure, saying the current business model was no longer sustainable “given the new environment in which Eskom operates and the increasing competition of alternate electricity supply. Business as usual for Eskom is not an option.”

The organisations’s other proposals in the medium to longterm included early decommissioning of older, less-efficient power stations and splitting the power utility’s operations into generation and transmission and distribution with an independent system operator and buyer to foster competition.

EIUG has urged Eskom to accelerate the buying of electricity from independent power producers (IPPs). Eskom has stalled signing power purchase agreements with 27 IPPs, casting doubt over the fate of the country’s Renewable Energy Independent Power Producer Procurement Programme.