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Nelson Mandela Business Chamber challenges Eskom's proposed 2018/19 electricity tariff hikes

Oct 18, 2017
Nelson Mandela Business Chamber challenges Eskom's proposed 2018/19 electricity tariff hikes

The Nelson Mandela Bay Business Chamber on Wednesday said that it recently submitted its objections to the National Energy Regulator of South Africa (Nersa) with regards to Eskom’s 2018/19 Revenue Application.

The Eskom application requests a general increase for Eskom customers of 19.9% (effective April 1, 2018) and increases to the Municipalities of 29.5% (effective July 1, 2018).

The Business Chamber has actively been protecting businesses’ interest in relation to critical issues which affect the economy of Nelson Mandela Bay.

It added that a reliable electricity supply at competitive prices is an absolute pre-requisite for a healthy industry in the Nelson Mandela Bay and the Eastern Cape in general.

For this reason it is the Chamber's recommendation that Eskom’s 2018/19 Revenue Application needs to be fundamentally reviewed before its implementation on 1 April 2018, said Nelson Mandela Bay Business Chamber Electricity and Energy Board Lead MC Botha.

“The FY2018/2019 revenue application not only raises the question whether the industry in South Africa will be able to continue sustaining itself, but also whether Eskom will remain viable. The incremental downward spiral of Eskom comes with dire consequences to this country,” Botha said.

Botha said the South African Reserve Bank’s Monetary Policy Review of October 2017 recently confirmed the already dire situation and the effect this application will have if implemented: “confidence readings for businesses have reached their lowest levels since the global financial crisis and as such a sluggish economic growth forecast of 1.2% for the next two years is envisaged, which will be worsened by electricity inflationary pressures.”

In the submission, the Business Chamber proposes that Eskom comes up with an application where tariffs are contained to levels of inflation or below.

It says that Eskom’s prices have spiralled out of control since 2008, and since then have outstripped CPI by a staggering 250%. A reduction in off take from its customers is the inevitable result, adding that Eskom industrial users reduced their off take by 20% since 2011, the mines by 6%, and municipal off take has shrunk by about 3%.

The Chamber said that Eskom is being plagued by mismanagement and alleged corruption leading to failures to get its operational costs and project management under control. Thus, in the submission, the Business Chamber appealed to Nersa to play its crucial role and discharge its statutory duty by ensuring that Eskom gets back on track to achieve its core objective, which is to provide electricity at affordable levels to all South Africans.

“It is imperative that Eskom reverses its upward cost spiral and service delivery failures. Eskom is failing our country and all its citizens. It is the duty of Nersa to prevent this from continuing,” Botha said.

The Chamber said that it welcomes other submissions made by the Nelson Mandela Bay Municipality, Energy Intensive Users Group, Busa, Naamsa, Naacam, Organisation Undoing Tax Abuse (Outa), Helen Suzman Foundation (HSF) and Afriforum – among others.

It called on local businesses to register to attend the public hearing, scheduled for 1 November in Port Elizabeth. Interested parties who wish to attend the public hearing must submit their request to publichearings@nersa.org.za by 15:30 on 23 October.

Condensed extracts from NMBBC Submission:

The effects of the application:  

  • If Eskom’s 2018/19 revenue application stands, it will be a catastrophe for the South African economy and for Eskom.
  • The application will lead to more price increases to cover the revenue losses resulting from decreased consumption. Eskom’s application will further undermine its own sales volumes as customers will go off-grid. 
  • The price increases if implemented will leave Eskom with generation capacity of at least 10,000MW which nobody will use. Currently, power stations which are costing the electricity users billions of Rand are already standing idle.
  • The proposed Eskom application will serve as an investment disincentive to South Africa and perpetuate the continued deindustrialisation of the country.
  • The application will materially contribute to more poverty, more unemployment and more inequality.

Proposals for review of the application:

  • Eskom’s tariffs must be contained within inflation to stimulate electricity usage and enable growth in the South African economy.
  • It is imperative for Eskom to do a proper strategic review of its business model, based on the realities of the environment it is operating in.
  • In comparison to the current application, Eskom needs to reduce its operational spending by at least R 24-billion to contain the increases within inflation.
  • The exorbitant requested capital costs of R77-billion for next year must be slashed as it places an untenable financial burden on the company. The necessity of further capital expenditure needs to be questioned given the reduction in off take Eskom is experiencing.
  • Eskom must restructure and substantially reduce its cost base. All Eskom’s costs have escalated out of control in the last 10 years and the application does not show substantial efforts to deal with that situation.
  • Generation capacity must be rationalised and capacity which is no longer required mothballed or closed down.
  • While generating less electricity compared to ten years ago, Eskom employs an additional 15,000 people.
  • Coal costs have escalated out of line with international coal prices – it has increased to almost double the international benchmark.
  • Tariff structures must be reviewed in line with the current supply and demand situation. Our municipality pays Eskom a very high tariff during the winter months. These high tariffs are then recovered from the municipal users through the municipal tariffs. This was historically justified by a shortage of electricity capacity during the winter months. Given the current situation of electricity generation overcapacity, Eskom’s winter tariffs are unnecessary.