Eskom said it had to asked for 36% increase in prices because of the government’s inability to rein in delinquent municipalities and errors made by the regulator in adjudicating earlier applications to boost tariffs.
The state-owned utility, which is receiving a R250-billion bailout from government, said the increase is needed to prevent the indebted company from returning to the authorities for further financial help. The hike would be for the 12 months to March 2026 and would be followed by increases of 11.8% and 9.1% for the following two years.
“We are striving to be more self-sufficient and not remain a burden on” government finances, Hasha Tlhotlhalemaje, GM for regulation, told reporters at a briefing on Monday.
The increase, which would add to a 600% jump in electricity prices since 2006, has attracted criticism from civil society, municipalities and government. Energy minister Kgosientsho Ramokgopa said earlier this month it would undermine economic growth and deepen poverty and that the government may intervene to keep prices lower.
The utility, which has about R400-billion of debt, has previously been a lightning rod for anger towards government as it imposed regular blackouts due to inadequate maintenance and experienced a series of corruption scandals.
The company has this year improved its power plant performance, with the last scheduled outage in March, but is courting fresh controversy because of the planned tariff increase, which compares with a 4.4% inflation rate. While the increase would give Eskom annual revenue of R446-billion, it is still below the 73% rise it would need to meet a return on assets equal to the weighted cost of capital.
Erred
“We are not a bundle of household goods,” said Tlhotlhalemaje, saying the comparison with inflation was inadequate.
Tlhotlhalemaje and Calib Cassim, Eskom’s chief financial officer, also said the massive hike was needed as energy regulator Nersa has consistently erred in adjudicating its requests and awarding increases that don’t reflect its costs.
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“There was obvious incompleteness, that’s a polite word for mistakes, in the decisions Nersa made,” Tlhotlhalemaje said, adding that the inadequate increases had built up a deficit that now needs to be recouped. As a condition of its bailout the company has to seek permission from national treasury to raise more debt, a method it had used in the past to lower price increases.
Municipalities, including those governing some of the country’s biggest cities, owe the utility R85-billion and that could rise to R200-billion in the 2028 financial year, Cassim said. “This is unsustainable,” he said. “Government needs to address this.”
Other concerns were agreements with metal smelting companies such as South32 and Glencore that give them discounted electricity and an incoming carbon tax that will cost the company R21.3-billion in the 2027 financial year.
About half of the factors feeding into the price proposal were under the company’s control while it had no influence over the others, the executives said.
Unless adequate increases are awarded “it will all come to naught” and the company will need further bailouts, Tlhotlhalemaje said. “Short-term pain for long-term gain. This is what the exercise is all about.” — (c) 2024 Bloomberg LP
