South African energy regulator denies Eskom 25.3% tariff hike

South Africa’s energy regulator refused national power utility Eskom’s second tariff increase request in the current financial period that would have taken rates up by 25.3%.

South Africa’s energy regulator refused national power utility Eskom’s second tariff increase request in the current financial period that would have taken rates up by 25.3%.

For ferro-alloys producers and aluminium smelters in the country it means that their electricity costs would increase only up to 12.68%, if they get power directly from Eskom, a much lower rate than if the National Energy Regulator of South Africa (Nersa) had accepted Eskom's 25.3% request.

But interruptions to power supply to their operations remain a reality as load shedding continues. Additionally, analysts warned that more price increases are to come next year, and that Nersa's denial of Eskom's 25.3% request was only a temporary victory. 

Nersa said Eskom did not provide reasons for the delays in the commissioning of its latest power stations, Medupi, Kusile and Ingula. The utility also failed to take into account the effect on its financial position of a ZAR23 billion ($1.9 billion) cash injection it is set to receive from its primary shareholder, the South African government, this year.

“Nersa has decided not to approve the application,” Jacob Modise, chairman of Nersa, said on June 29. Modise noted that Eskom also did not sufficiently outline the effect of the government’s conversion of a ZAR60 billion loan into equity on the utility’s financial situation.

However, the main challengeto Eskom’s request to increase rates in the current financial period by a total of 25.3% was that the increase request was the second one in a single financial year, something the Municipal Act of the country does not allow.

Door left open

“This means that Nersa has left the door open for a tariff increase request in the next financial year,” Elton Bosch, gm at energy consulting firm, NUS Consulting Group’s South African arm. “More energy price increases are still to come.”

The 25.3% request comprised the already-granted 12.69%, due to be implemented by municipalities on July 1, plus 10.1% to cover the charges of diesel fuel when the utility runs the open-cycle gas turbines during peak periods, as well as another 2.51% due to an increase in the environmental levy that Eskom is liable for.

Eskom said in response to Nersa’s rejection of the utility’s price hike request that it would study Nersa’s decision and consult with the government before the utility makes any further comments on the impact of the decision.

In the immediate aftermath of Nersa’s decision, however, Bosch believes consumers have a small breather of relief, but only until the municipalities start implementing the 12.69% increase that Nersa approved in February.

The municipalities are set to affect the increase from July 1. “In the next few months, when the 12% increase becomes reality, a lot of people and businesses are going to struggle,” Bosch said, adding that institutions such as ferro-alloys producers are already hard hit by high input costs and regular load shedding.

Cost of load shedding

“Generators don’t switch on immediately when the lights go out,” he explained.

“There’s always a little lag before they kick in. Then you have to discard whatever you were busy with and start over. So you can imagine the cost involved in having to discard materials if you’re caught by load shedding in the middle of a production cycle. The cost of loadshedding to the country’s economy is arguably higher than the cost to the economy of rate increases.”

Eskom has been submitting the country to a regular schedule of Stage One, Two and even Stage Three load shedding since the start of the year. Stage Two seems to be at the order of the day at the moment, which means Eskom sheds about 4,000 MW electricity virtually on a daily basis, although the utility is vague on what the power deficit is on the grid at present.

Bianca Markram
editorial@metalbulletin.com


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