Industry wary of Eskom discounts
NOT ENOUGH BUYERS FOR SURPLUS POWER GENERATED BY UTILITY Eskom is hoping discounts to deserving customers will drive sales as oversupply turns into a major problem, but burnt industries are wary.
South African Energy regulator Nersa must decide in the next month whether it will allow Eskom to give discounted tariffs to some corporate clients.
South African Energy regulator Nersa must decide in the next month whether it will allow Eskom to give discounted tariffs to some corporate clients.
Eskom spokesperson Khulu Phasiwe has confirmed the utility has applied to Nersa to charge a company called Silicon Smelters – with plants in Polokwane and Emalahleni – discounted tariffs over two years.
Phasiwe would not disclose the extent of the discount. Previously, Eskom burnt its fingers in a long-term agreement with BHP Billiton for electricity to its smelters at a low cost. The agreement was concluded decades ago when there was surplus electricity. Eskom could not extricate itself from it when the tables were turned and demand exceeded supply after 2008.
During two recent media briefings, Eskom CFO Anoj Singh hinted at price incentives for industrial clients to encourage increased electricity use as Eskom currently has an oversupply.
This is, however, the first real step into unchartered waters.
Eskom’s tariffs are strictly regulated and the Electricity Regulation Act (ERA) provides that tariffs should allow Eskom to recover its full cost, provided it is efficiently incurred, plus a reasonable margin. It allows for cross-subsidisation between customer categories but forbids “undue discrimination between customer categories”.
The ERA further provides that the regulator “may, in prescribed circumstances, approve a deviation from set or approved tariffs”.
Such circumstances are not set out in the act.
Phasiwe said Silicon Smelters approached Eskom for assistance due to the depressed state of the industry. The utility approached Nersa to assist the company and avoid job losses, but is requesting approval for only two years.
He said this was the first such application and Eskom would proceed according to Nersa’s instructions.
If the regulator approves the application, Eskom would consider similar assistance to other clients, but only in distressed industries where jobs are at stake.
Phasiwe said Eskom would also consider an application from clients in the poultry industry that is facing pressure from cheap imports, pending regulatory approval.
Henk Langenhoven, economist at the Chamber of Mines, says incentives would have to be substantial and long-term to trigger investment decisions. Companies that closed their smelters and moved to other countries would not return for a two-year discount, he says.
It might however provide relief in the short term to some distressed Eskom clients. David Mertens, spokesperson of the intensive energy user members of the Nelson Mandela Bay Business Chamber, is sceptical. The chamber successfully challenged Nersa’s decision to grant Eskom an interim hike last year in court. Nersa and Eskom have appealed the ruling, but the appeal has not yet been heard.