Thank goodness for Nersa
Thank goodness for Nersa (National Energy Regulator of SA), which has turned down Eskom’s latest greedy and sloppy application for another electricity price increase this year.
It is essential that Eskom should get sufficient revenue from electricity sales to cover its costs, including operating costs and capital costs for new power stations. There must be no subsidies.
However, it is also essential Eskom uses its revenue – its massive revenue – to manage its finances in a timely, responsible manner. It must not look for easy but expensive escapes, such as the latest price request.
Here is a comparison with a rental for a house.
You buy a house for rental. You borrow money from the bank to do so. It will take you 30 years to pay off the bond. You put the house up for rent and charge R10 000 a month. But then you decide you don’t want to spend 30 years in repayments. You want to pay it off quickly and then make fat profits. So you tell the tenant you have changed your mind: the rent is now R20 000 a month.
Of course the tenant will leave you and choose another landlord. Eskom customers have no such choice. Therefore it is essential a regulatory body should authorise any electricity increases. Nersa is such a body, and is doing an excellent job.
Eskom has been appallingly badly managed in the last 10 years or more. It has let its operating costs, especially coal, diesel and staff, spiral out of control. Its new stations are years behind schedule. Inadequate maintenance means more failures of its coal stations, and therefore more blackouts. It is reluctant to borrow even if it can still get cheap debt, despite down ratings. So it is looking for an easy fi x by screwing higher prices out of its long-suffering customers.
An additional problem is the mounting cost of procurement corruption. There are horror stories in the press of the enormous prices Eskom is paying for fuel to benefit the BEE elite. Eskom could buy diesel from an oil company at X rand a litre. Instead a BEE crony buys it from the company at X rand and sells it to Eskom at X+ rand, using just a telephone call, adding no value, but pocketing a gigantic profit.
Will Eskom end this corruption or just pass on the costs to its customers?