Johannesburg — WITHOUT Eskom's application for a huge increase earlier this year, it is doubtful if the government would have moved as swiftly as it has done to come up with its electricity pricing policy.

The policy gaps in electricity pricing became noticeable after Eskom asked the National Energy Regulator of SA (Nersa) for a 60% increase in tariffs.

P ricing also ca me under scrutiny at the multi-stakeholder summit held on Eskom's tariff application.

The need for the regulatory certainty that the policy brings has become more profound as it becomes clear that, in determining electricity prices, Nersa must balance various interests, most notably those of the poor with Eskom's. Clearly this is a task that, as time goes on, will require the wisdom of Solomon.

The minerals and energy department's spokesman, Bheki Khumalo, says that by setting a clear pricing framework, the policy will guide Nersa on future price determinations.

It has been said so many times recently that there is only one way for electricity tariffs -- and that is up. South Africans have come to accept that the era of abundant and cheap electricity belongs in the past. But notwithstanding this reality, the government and other interest group such as trade unions, have been adamant that the poor must be cushioned from high electricity tariffs. This argument prevailed at the energy summit in May this year.

A declaration of the summit says the government, organised business, labour, community and political organisations and other parties that attended the summit would develop specific proposals on how to protect the poor.

"Achieving that aim must be done in a way that ensures the poor and working people still have access to affordable electricity," the declaration says.

Not surprisingly, ensuring electricity access to the poor is one of the desired outcomes of the policy which the c abinet approved last week. It has since referred it to Nersa for consideration. The regulator will facilitate the implementation of the policy by developing rules, regulations, plans, programme and projects.

There is also something for Eskom in the policy: "Tariffs, therefore, need to be set at a level which would not only ensure that the utility (Eskom) generates sufficient revenues to cover the full costs, including a reasonable margin or return, but would also allow the utility to obtain reasonably priced funding.

"Ratings agencies and lenders focus on a range of appraisal factors including profitability ...," says the policy.

For too long, the utility has maintained the need for tariffs that reflect the cost of providing electricity. This, according to Eskom, will be in the interest of the utility's financial sustainability. The policy says electricity tariffs must reflect the cost of rendering electricity services "as accurately as practical. The average level of all the tariffs must be set to recover the approved revenue requirement".

Perhaps the biggest feature of the policy is the certainty and predictability it seeks to bring into electricity pricing. In what could signal an end to Eskom springing tariff surprises on the country, the policy moots a pricing forecast.

"Given that customers have long-term requirements, there is a wide support for the publication of a long-term price outlook. The price forecast should include a reasonable period of not less than 10 years," it says.

Nersa is already going down that road. When it announced its determination on Eskom's application earlier this year, the regulator projected tariff increases of between 20% and 25% a year in the next three years "if the current economic climate continues to prevail and Eskom's capital expenditure programme remains as currently stated".

Dealing head-on with the export of electricity, the government wants Nersa to develop and implement a framework for the pricing of international sales contracts. At the height of the electricity supply shortages, Eskom came under fire over exports. Economist Mike Schussler even claims that the utility sold electricity to customers in neighbouring countries at less than the cost price.

"International customers connected to the system must not pay or receive subsidies for South African customers. South African customers must not subsidise the export of electricity," the policy says.