A tar­iff-hike time­line

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

The dra­matic slow­down in eco­nomic growth ex­pected this year will give Eskom am­ple am­mu­ni­tion to claim even larger tar­iff hikes from the Na­tional En­ergy Reg­u­la­tor of SA (Nersa) in com­ing years.

The state-owned power util­ity spent the past week at pub­lic hear­ings de­fend­ing its cur­rent re­quest to re­cover an ex­tra R22.8 bil­lion from con­sumers.

This is from the so-called reg­u­la­tory clear­ing ac­count (RCA) ( see box), which is the dif­fer­ence be­tween Eskom’s ac­tual in­come and the in­come it is al­lowed.

Eskom’s tar­iffs are the­o­ret­i­cally con­strained by the mul­ti­year price de­ter­mi­na­tion (MYPD) sys­tem, which sets the av­er­age in­crease in tar­iffs it is al­lowed based on eco­nomic fore­casts.

The cur­rent one, MYPD3, will run up to 2018, but in prac­tice, Eskom is likely to seek up­ward re­vi­sions of the pre­de­ter­mined 8% ev­ery year.

Most of the ex­tra money Eskom wants to re­cover through higher tar­iffs this year, to­talling R11.7 bil­lion, stems from elec­tric­ity sales hav­ing fallen short of pre­dic­tions.

This is a far big­ger in­flu­ence than the cost of diesel in the year, which blew the Nersa-ap­proved bud­get by R8 bil­lion.

The MYPD3 was based on es­ti­mates that Eskom’s power sales would grow in line with eco­nomic growth. Un­for­tu­nately, the MYPD3 used growth es­ti­mates far higher than what ac­tu­ally ma­te­ri­alised. For 2016, it as­sumed GDP growth of up to 3.9%, whereas the In­ter­na­tional Mon­e­tary Fund (IMF) this week pro­jected the re­al­ity would be closer to 0.7%.

Eskom’s ap­pli­ca­tion for the R22.8 bil­lion, which was lodged in Novem­ber, es­ti­mated power sales would only grow by 0.9% per year over the whole MYPD3 pe­riod.

The MYPD was based on sales of 217 890 gi­gawatt-hours in lo­cal sales, in­clud­ing the cheaper power sold to alu­minium smelters un­der old ne­go­ti­ated con­tracts. In re­al­ity, Eskom sold only 205 990GWh. Of the R11 bil­lion be­ing claimed be­cause of low sales, R4 bil­lion is re­lated to drop­ping sales in the con­tentious ne­go­ti­ated alu­minium-smelter con­tracts.

Most of the short­fall came from smelters and mines.

The dis­crep­ancy can only get worse, as eco­nomic growth is dan­ger­ously close to stop­ping al­to­gether, with some ma­jor power-con­sum­ing heavy in­dus­tries suf­fer­ing the worst of it.

Back in Oc­to­ber, the IMF pre­dicted South Africa would have GDP growth of 1.3%. How­ever, this fig­ure went down to 0.7% ear­lier this month.

This es­ti­mate is not backed up by sub­stan­tial anal­y­sis about which parts of the econ­omy will stag­nate more than an­tic­i­pated, but a fair guess is that it is largely about com­mod­ity prices.

The IMF’s Jan­uary pro­jec­tions have proven rea­son­ably ac­cu­rate in the past.

In Jan­uary 2011, it es­ti­mated South Africa’s eco­nomic growth for that year at 3.4%. It turned out to be 3.5%.

In 2012, the IMF got the growth fig­ure of 2.5% spot-on in Jan­uary of that year.

Since then, how­ever, the IMF’s pro­jec­tions have been overly op­ti­mistic for each year:

In Jan­uary 2013, it pre­dicted 2.8%, but only 2.2% ma­te­ri­alised.

In Jan­uary 2014, it pre­dicted 2.8%, but the fi­nal tally was 1.5%

Last year, the IMF pre­dicted 2015 growth at 2.1%, but its early es­ti­mates say only 1.3% ac­tu­ally ma­te­ri­alised.

In Fe­bru­ary 2013, Nersa ap­proved the MYPD3, al­low­ing Eskom 8% tar­iff in­creases ev­ery year through to 2018. The first 8% hike was in April 2013.

As things stand, Eskom was al­lowed to push up last year’s 8% in­crease to 12.69% due to the pre­vi­ous RCA process re­lated to MYPD2. Nersa al­lowed it to re­cover R7 bil­lion re­lated to pre­vi­ous years’ in­come fall­ing short.

Now Eskom wants to re­cover R22.8 bil­lion, which would mean a mas­sive hike this year, or rais­ing all the hikes go­ing for­ward from 8% to some­thing higher. This num­ber re­lates en­tirely to the first year of the MYPD3 – the year up to March 2014.

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