Eskom pleads for tariff increase to avoid debt cliff

Image: Breakingviews
Daiyaan Halim, Field Editor

South Africa’s National Energy Regulator (NERSA) commenced nationwide public hearings on Monday into state-owned Eskom’s request for a 45 percent increase in electricity tariffs spread over three years, with the first 15 percent increase to be implemented in 2019.

If granted, the increase will be over and above the 4.41 percent hike already granted to the power utility in 2018, which will come into effect this year.

The regulator, which sets prices and tariffs for Eskom, will receive input from the public, and civil society over the next three weeks to determine what the utility can charge for electricity in future.

On the first day of the hearings, Eskom CEO Phakamani Hadebe, argued in favour of the tariff increase, warning that the power utility is on the brink of a debt trap. According to the CEO, the utility’s debt has increased from R35 billion in 2007 to R419 billion to date.

Eskom’s CFO, Calib Cassim, echoed Hadebe’s concerns, explaining that the utility cannot afford to meet its debt commitments and that it is unable to secure long term loans.

“Most financial ratios have deteriorated and are expected to worsen further towards year-end. Our year-end projections are literally sitting at half.”

“Eskom is taking one borrowing to pay for another borrowing. It is like using one credit card to pay for another credit card. That is the position Eskom is finding itself in currently.”

Hadebe apologised to the nation for the challenges faced by Eskom, stating that they were avoidable. He pleaded for the nation to work together to solve them.

“Eskom deserves to apologise. It is compelled to apologise to South Africans for bringing these challenges. They were avoidable. All these challenges, load shedding [rolling blackouts], were built over time. But turning around an institution facing challenges takes time.”

The Organisation Undoing Tax Abuse (OUTA) is among several civil society organisations which will make representations to the panel in response to Eskom’s request. It has argued that NERSA should not allow the increase to exceed Consumer Price Inflation.

The current increase requested, of 52 percent over three-years, is significantly above the South African Reserve Bank’s inflation target of 3 to 6 percent.

Wayne Duvenage, OUTA’s CEO, stated to local media that “We are tired of inefficient state owned entities believing they are able to pass on their massive operating and debt costs to society, when in fact they should be running their operations as innovative world-class entities.”

The South African Local Government Association, which represents municipalities throughout the country, opposes the increase, saying that it will exacerbate debt owed to Eskom and force more customers off the grid. Municipalities, which are responsible for distributing approximately 46 percent of energy to end-users, currently owe the power utility R17 billion.

If granted, the price hike will see electricity costs raised from 89c/kWh to 102c/kWh.