31 January 2013

South Africa: Eskom Public Hearings Kick Off in Gauteng

Photo: Saragoldsmith/Flickr
Power lines

Johannesburg — Eskom's chief executive officer, Brian Dames, says a stable supply of energy is crucial to power South Africa's economic growth going into the future.

Speaking on Wednesday at a public hearing into the state entity's request for a 16% tariff increase from the National Energy Regulator of South Africa (Nersa), Dames said the utility's request covered the cost of supplying power, investing in the future and financing new capacity.

"A stable supply of power is essential to [fuel] economic growth," said Dames at the start of the regulator's two-day hearings in Gauteng.

In October 2012, Eskom asked the regulator for a total 16% tariff increase over the next five years. The utility is asking the regulator for 13% for each of the five years for its own needs, plus 3% to support the introduction of Independent Power Producers (IPPs).

The IPPs are expected to contribute 2% to the country's energy grid.

The current Multi-Year Price Determination, MYPD 2, comes to an end in March 2013.

Dames said Eskom was cognisant of the impact of its request, but that current electricity prices did not cover the full costs of producing electricity. The poor have also been considered under Eskom's application, he said.

A pact with mining companies covering the cost of coal was one of the things that was needed, said Eskom.

"It is important for us to work with mining companies. We have met with four executives from four companies already," noted Dames.

The tariff increase was necessary to maintain revenue as well as to cover operating costs and the financial stability of Eskom. The tariff Eskom was asking for, said Dames, should meet the requirements of both industry and consumers.

Eskom raises money through debt, equity and revenue.

Dames said there has also been engagement with government on the matter.

Subesh Pillay, from the South African Local Government Association (SALGA), said although the power parastatal needed to have cost reflective prices, municipalities would feel the pinch of the tariff hike if Eskom was granted its request.

Eight of the countries' metros account for 60% of the country's economic output, said Pillay, noting that the hike would impact on this ability. It would take longer for municipalities to collect revenue.

On the socio-economic front, the request, as it stands at 16%, could lead to social unrest -- a consideration that should be taken seriously. Municipalities would battle to maintain their Eskom bill, said Salga.

CEO of the South African Chamber of Commerce and Industry (Sacci), Neren Rau, said its members were aware that a tariff hike was necessary, but that most of its members could accommodate a tariff increase of between 5% and 10%.

"Electricity is critical for business," he said, adding that only a few Sacci members -- which were mostly medium and small businesses -- would be comfortable with a 10% - 16% tariff increase.

Rau said business was concerned about the pass-on rate that municipalities would charge them.

Sacci also suggested that Eskom's tariff request be revisited to see what impact the proposed tariff hike would have on the economy.

In a survey conducted among its members, the chamber said that should Eskom be granted the 16% hike, 51% of Sacci members would consider staff reductions in order to pay for the hike.

However, Rau acknowledged that business had been engaged on the proposed hike.

Meanwhile, Itumeleng Mosala of the American Chamber of Commerce in South Africa, said the proposal at 16% would make it difficult for companies to contribute to economic growth.

The first of the countrywide public hearings into the request kicked off in Cape Town on 15 January.

The hearings in Gauteng are scheduled to continue up until Thursday, with Nersa having received more than 200 comments and 75 requests to present at the hearings.

The proposed increase represents a total price increase from the current 61 cents per kilowatt hour in 2012/13 to 128 cents per kilowatt hour in 2017/18.

Nersa is tasked with making the decision on the application. Prior to the start of the nationwide hearings, Nersa said a decision could be expected on 28 February 2013.

Earlier on Wednesday, there was a legal picket outside the venue where the hearing is being held.

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