Nelson Mandela Bay Business Chamber opposes another Eskom tariff Increase

JUNE 24, 2015

Nelson Mandela Bay Business Chamber CEO, Kevin Huslter, is expected on Wednesday to make presentations before the National Energy Regulator (Nersa) on why Eskom should not be granted another tariff increase.

A delegation representing business in the Bay will present at the public hearings on Eskom’s selective reopener application for the third Multi-Year Price Determination at the Nasrec Expo Centre.

Nelson Mandela Bay Business Chamber Strategic Resources Task Team chairman Angus Clark and Deputy President MC Botha will offer a presentation on behalf of the business community during the public hearings, which started yesterday (June 23).

The reason why the Nelson Mandela Bay Business Chamber is opposed to tariff increases is simple: We want to ensure the sustainability and competitiveness of our businesses to preserve employment in the city.

Hustler said the member companies of the Chamber in the Metro together employ approximately 60 000 people and that the business community is deeply concerned about the effect the high cost of electricity has on the continued viability of their businesses, and the threat to employment in Nelson Mandela Bay.

“Electricity prices have increased fourfold (quadrupled) in Nelson Mandela Bay since 2008. The effect of such increases on the economy had been devastating in terms of employment and de-industrialisation. Collectively five companies in the manufacturing sector had already shed 950 jobs between 2010 and 2012 in the city because of the high cost of electricity. Compounded to this, there is uncertainty around future electricity supply, which is affecting local investor decisions and damaging the confidence of potential foreign direct investors,” Hustler said.

 The main recommendations of the Business Chamber’s written objection, which had already been submitted to Nersa, include:

  • The NMB Business Chamber opposes Eskom’s application for further tariff increases this financial year;
  • The Chamber not only rejects the increases as requested by Eskom, but also considers the approval of these increases to be unlawful. We believe that the public participation process conducted in relation to the application by Eskom was flawed;
  • We strongly object to the implementation of the Environmental levy by National Treasury, which may well be underpinned with good intentions, but at this stage would significantly impact the cost of electricity and competitiveness of businesses.

On their return, the delegation representing the Nelson Mandela Bay Business Chamber’s interests at the Nersa public hearings will join the rest of the business community in continuing to oppose uncompetitive higher electricity tariffs in the city.

 We will do this through:

  • The Business Chamber will utilise all available platforms to lobby and advocate for its members, the broader business community and citizens of the metro alike.
  • We have already engaged extensively with the Nelson Mandela Bay Municipality both in written submission and discussions on the way forward.
  • We hope to mobilise the broader civil society and encourage active citizenry in voicing their concerns and objections through their available channels and on the appropriate platforms.

Hustler said the Nelson Mandela Bay Business Chamber would encourage the seeking of sustainable solutions to ensure that the city’s power supply is provided reliably and at internationally competitive prices which is cost-reflective.

“We encourage the continued driving of renewable energy projects in creating a sustainable supply for the future needs of the nation. In this regard we encourage the Department of Energy and Eskom to reduce the red tape for Independent Power Producers to ensure the fast-tracking of such projects. On the domestic front, we would like to see the implementation of domestic solutions at business premises and private homes being incentivised by government, as well as financing solutions being provided by the financial institutions,” Hustler said.

Several sectors have come up in opposition to Eskom's bid for a second electricity tariff increase this year arguing that paying more electricity will hurt their businesses while others have argued that it will be unlawful for Nersa to award Eskom the increase.

Nersa is expected to announce its final decision on the matter at the of June.

Eskom will not sell assets

During public hearings that statrted on Tuesday, Eskom acting CEO, Brian Molefe, told Nersa that the power utility must not be allowed privatise its assets in a bid to raise the funds it needs to improve power generation. Molefe believes the funds must come from another tariff increase.

“I do not think it will be appropriate to sell shares in Eskom at this stage,” he said.

Molefe is asking the Nersa for a 9.58% electricity tariff increase to fund a R50bn shortfall needed to avert load shedding while they conduct much-needed maintenance on its ageing fleet.

However, energy expert Chris Yelland told the panel of regulators on Tuesday that Eskom was not considering other options, such as unbundling and restructuring Eskom’s generation fleet and selling its non-core assets and/or power stations.

Molefe said this would be detrimental to Eskom as it was currently in its “bust” cycle and was “hurting” from funding its over-capitalised new build programme of Medupi, Kusile and Ingula.

“By 2019 or 2020, we should find ourselves in the upward spiral [of cash availability] again and that is when I think we will get our credit rating back,” he said.

‘People who buy will just benefit’

“That is why I think selling shares in Eskom will be inappropriate at this stage, because the cycle is the wrong time to sell,” he said. “People who buy will just benefit from the … period in Eskom when it becomes cash flush, without having gone through the pain of investing in Kusile and Medupi, which have largely been done … and are just about to be completed.”

“When we get into the 2020s, we should not stop with the capital expenditure programme,” he said. “We should continue with it so that we minimise the impact of the next cycle.”

Molefe said that since the 1920s, the lifecycle of Eskom “has been boom and bust and unfortunately we are now in a bust cycle that we need to get out of without causing ourselves long-term harm”.

He said Eskom had one of the lowest tariffs in the world in the 1990s, which was a “correct decision”, but “that period is over and we are now again on a downward spiral, where we require more capacity, where we require more capital expenditure”.

“What we failed to do in the late 1990s and the late 1980s when we were cash flush was to think about this period of putting aside money or starting the capital expenditure programme earlier.”

Moving out of junk

Molefe said he wanted Eskom to gain its investment integrity back.

“I don’t think Eskom should be rated as junk,” he said. “We will be working very hard to restore Eskom’s integrity back to investment grading.

“We think that we will reduce the cost of borrowing over the long term and it is good for South Africa.

“I also, incidentally, do not think that we should allow South Africa to deteriorate to junk status as sovereign and this issue of load shedding has been cited by ratings agencies, by the IMF, by the economists, as one of the things that are contributing to low economic growth.

“If we cannot mitigate load shedding by putting aside money for OCGTs and allow load shedding to proceed, unfortunately what will happen is that the impact on the economy will be much bigger than what we’re trying to save.

“Eskom has an appropriate capital structure in our opinion for a state-owned utility,” said Molefe. “At the moment we have gearing of about 75%. Once the state has injected R23bn in equity and converted R60bn from loan to equity, that will reduce to about 69%. That is about appropriate.”

---additional reporting News24wire and NMB Business Chamber