Eskom’s status at risk – again

The utility needs Nersa’s R66.7 billion or its results could be qualified.

Annual results could be qualified unless it gets additional support.

Unless energy regulator Nersa grants Eskom R66.7 billion additional revenue through increased electricity tariffs on June 21, it might not be able to continue as a going concern.

As a result, its annual results could be qualified unless government provides Eskom with additional support, as it did in January before the release of its interim results.

Eskom postponed the release of its interims in December and was only able to release it at the end of January after the going concern status was resolved.

Eskom acting CFO Calib Cassim divulged just how precarious Eskom’s financial situation is in an affidavit in which he sets out the devastating effect of consecutive delayed Nersa tariff determinations on the utility.

The affidavit formed part of Eskom’s application to the high court to have Nersa’s decision to award it a mere 5.23% tariff increase for 2018/19 set aside. Eskom applied for an increase of 19.9%.

Eskom is asking the court to refer the matter back to Nersa to re-determine the tariff increase. This comes despite the fact that the increase already took effect on April 1 for Eskom’s direct clients and will do so on July 1 for municipalities.

Eskom is also asking the court to declare Nersa’s delay in processing its three applications for interim increases unconstitutional.

In his affidavit, Cassim tries to dispel the belief that Eskom’s problems are of its own making through mismanagement and corruption.

He quotes statements from ratings agencies who have repeatedly referred to low tariffs that are not cost reflective and regulatory uncertainty as weighing on Eskom’s credit rating, even after the new board was appointed and set out cleaning up Eskom.

He says the contested 5.23% tariff increase came on the back of several years of small increases.

In the previous tariff period (MYPD3) Nersa gave Eskom an 8% annual increase instead of the 16% it applied for.

This left Eskom with a shortfall of R225 billion, Cassim says.

In 2017/18 Eskom got only 2.2% more and despite desperate appeals, Nersa failed to finalise the outstanding RCA applications in time for implementation this year.

As a result, it had to fund the R66.7 billion from other sources, which has resulted in unbearable pressure on its liquidity.

Eskom’s court application is not brought on an urgent basis and it could take up to a year.

If finalised in time and if Eskom is successful, it could together with positive RCA outcomes, result in an average 20% electricity tariff increase next year.

Eskom’s dire financial situation is compounded by labour unions threatening strike action due to the company’s announcement that it won’t increase salaries or award its staff bonuses this year.

Some unions demand a 15% salary increase.