CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

he bil­lions of rands Eskom wants to re­coup from con­sumers to keep the lights on “is noth­ing com­pared with the cost of not do­ing it”, claimed act­ing CEO Brian Molefe this week.

The im­plied threat was that Eskom would sim­ply let load shed­ding reign if con­sumers did not cough up for the cost of emer­gency power.

Eskom wants about R16.8 bil­lion ex­tra per year to buy diesel and power from in­de­pen­dent power pro­duc­ers. This is sup­posed to be the only way to per­form long-over­due main­te­nance on power sta­tions with­out tak­ing load shed­ding to a whole new level.

The money will be spent re­gard­less of whether the Na­tional Energy Reg­u­la­tor of SA (Nersa) grants the tar­iffs, ac­cord­ing to Molefe. “Even if it is not granted, we will claw it back,” he said.

There have been a num­ber of es­ti­mates of what load shed­ding costs the econ­omy. Na­tional Trea­sury has cited R15 per kilo­watt-hour while in­de­pen­dent econ­o­mists have in the past used fig­ures as high as R100 per kWh.

Last month, Nersa re­leased Eskom’s method for cal­cu­lat­ing the dam­age done by power in­ter­rup­tions – the cost of un­served energy – for public com­ments.

Public hear­ings in Septem­ber will as­sess the com­pany’s method, which gives a “to­tal eco­nomic ef­fect” of R77 per kWh. Some an­a­lysts sim­ply mul­ti­ply this num­ber by the amount of load shed­ding, so a stage-one shed­ding of 1 000MW would cost about R77 mil­lion per hour.

Con­sid­er­ing diesel gen­er­a­tors cost about R2.30 per kWh, the equa­tion is a com­plete no-brainer, even if the dam­age as­sess­ment is over­stated 20 times. The only ques­tion is who should pay for it.


Eskom launched a se­lec­tive re­opener of Mul­ti­year Price De­ter­mi­na­tion 3 (MYPD3) with Nersa in April, which sets the an­nual tar­iff hikes for three years, namely in July 2015, 2016 and 2017.

Eskom thinks the 12.7% hike it is al­ready al­lowed to im­ple­ment this year is not enough. In­stead, it says it needs an ex­tra:

R11 bil­lion per year for its diesel gen­er­a­tors (6.8% tar­iff hike);

R5.8 bil­lion per year for short-term con­tracts with in­de­pen­dent power pro­duc­ers, the big­gest of which are Sa­sol, Mondi and the City of Tsh­wane (3.3% tar­iff hike); and

2c per kWh to cover the in­creased en­vi­ron­men­tal levy an­nounced by Fi­nance Min­is­ter Nh­lanhla Nene in this year’s bud­get, which Eskom wants to pass straight through to cus­tomers (2.5% tar­iff hike).

The call for sub­mis­sions on Eskom’s ap­pli­ca­tion lead­ing up to this week’s hear­ings has drawn a bar­rage of crit­i­cism from across the po­lit­i­cal spec­trum, in­clud­ing unions, em­ployer groups, NGOs and aca­demics.

Lo­cal elec­tric­ity sec­tor com­men­ta­tor Chris Yel­land even ac­cused Eskom of com­ing up with “heav­ily over­stated” cost es­ti­mates to max­imise the tar­iffs it is ask­ing Nersa for.

Another sub­mis­sion to Nersa, from for­mer eco­nomic ad­viser to Busi­ness Unity SA Ray­mond Par­sons and two aca­demic col­leagues, raised the spec­tre of a tar­iff re­cidi­vism where Eskom makes a mock­ery of the whole mul­ti­year price de­ter­mi­na­tion sys­tem by con­stantly re­quest­ing more money.

Eskom is in ef­fect be­ing paid to screw up, ar­gue the pro­fes­sors.

Ac­cord­ing to Par­sons and his col­leagues, South Africa faces a vi­cious cy­cle where higher tar­iffs cause higher tar­iffs.

The higher Eskom’s prices go, the less elec­tric­ity ac­tu­ally gets sold. This trend has been vis­i­ble since 2008, with South African power use cur­rently sit­ting at lower lev­els than a decade ago.

In his sub­mis­sion, Yel­land ar­gues that the ex­tra 12.6% tar­iff hike Eskom wants should only be 3.6%. The rea­son be­ing that diesel and in­de­pen­dent power pro­ducer power is only nec­es­sary be­cause Medupi is late and many other plants are con­stantly bro­ken.

Apart from this be­ing Eskom’s fault and not some­thing the public should pay for, that also means Eskom is in­flat­ing the costs it wants South Africans to cover, Yel­land claims.

Eskom would spend money on power from Medupi any­way and that was al­ready reck­oned into the ex­ist­ing tar­iff in­creases. Log­i­cally, Eskom has to sub­tract the R1 per kWh that Medupi power would’ve cost from the price of the emer­gency power it is buy­ing in­stead, ar­gues Yel­land.

The same goes for the de­layed Kusile and In­gula pump stor­age. That gives a de­fen­si­ble ex­tra tar­iff hike of 3.6% in­stead of 12.6%, ac­cord­ing to Yel­land’s cal­cu­la­tions.

Eskom’s plan to pass through the new 2c per kWh en­vi­ron­men­tal levy is also dodgy, says Yel­land. Trea­sury hasn’t ac­tu­ally im­ple­mented it, so there is noth­ing for Eskom to pass on, he says.

Labour fed­er­a­tion Cosatu’s sub­mis­sion puts the onus on gov­ern­ment to fund Eskom and ar­gues that it should be in­dus­trial tar­iffs for com­pa­nies that carry any new bur­dens in­stead of house­holds. It says “the mul­ti­year price de­ter­mi­na­tion sys­tem is fac­ing a cred­i­bil­ity cri­sis be­cause, since its in­cep­tion, Eskom has been able to get ad­di­tional in­creases be­fore the end of the de­ter­mi­na­tion pe­riod”.

The Na­tional Union of Me­tal­work­ers of SA, now the largest pri­vate sec­tor union in the coun­try, has ac­cused Eskom of in­flat­ing the cost of diesel use un­der­pin­ning its ap­pli­ca­tion. It is de­mand­ing a bet­ter break­down of ex­actly how much Eskom in­tends to use its diesel gen­er­a­tors.

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