Regulator: Concession means Eskom tariff hike will now be 10% to 13%
An electricity rate increase above the 8% that had already been granted by the National Energy Regulator of South Africa (NERSA) was announced yesterday. This increase is to provide Eskom with R7.8 billion of revenue from consumers and will push the actual tariff increase to at least 10%, perhaps as high as 13% (the details are still being calculated). It stems from an application made by Eskom for an increase in revenue of R18.4 billion. Having an in-depth look at the increase, the state of Eskom and its leadership is the man at NERSA responsible for the Eskom tariffs, Thembani Bukula. – LF
ALEC HOGG: The key issue for mining, in fact for the whole of the South African economy, is energy. Joining us now to explain the Energy Regulator's decision to allow Eskom to recover close to R8bn in losses from consumers and, really to look at a broader issue that the Regulator has with Eskom is the full-time Regulator responsible for electricity, Thembani Bukula. Thembani, you are probably one of the most important people in the country right now, given that you will make the decisions on how much Eskom can charge the rest of us, so that they can invest in energy, so the country can keep going. It's a Gordian knot.
THEMBANI BUKULA: Yes, I think times are very difficult. To try to balance between the prices, and affordability of them and the sustainability of the entity is very delicate, at this stage.
ALEC HOGG: I've looked around at Eskom and they've got whole floors now that just don't have people left anymore, so by doing what you did, restricting the increase in the tariffs, you certainly have made Eskom look at its cost structure. How close is it now to being really, efficiently operated, so that you can then give them increases that are, based on what they need for capital?
THEMBANI BUKULA: We're of the view that when they did their business process review they have looked at their structures and they should be closer to that optimal level of operation, with both manpower and other resources in which they operate.
ALEC HOGG: How far are they away from it, though?
THEMBANI BUKULA: I wouldn't be able to say how far they are, but I think that they started two years ago, so most business processes are two/three-year periods. Then they start getting the results and we are seeing some results, for instance in the availability of the generation plant, there's an improvement. We have not seen notices that consumers must reduce their consumption by ten percent. We have not seen load shedding, so there's progress.
ALEC HOGG: Well, there was also the platinum strike, which no doubt helped a little in dropping.
THEMBANI BUKULA: Yes.
ALEC HOGG: I was looking at some figures from Econometrics this morning, and consumption down nearly three-percent, year-on-year, so there certainly has been a cut back there. From where you are sitting, it is a complex calculation that you have to do, though. When you sit down and you decide how much to give to Eskom in its tariff increases, what are the issues that occupy your mind?
THEMBANI BUKULA: I think the first one is the affordability of electricity because it doesn't really matter how much Eskom really requires. If it could not be afforded, then it would then be a futile exercise. Firstly, we do look at affordability but the other part we then have to balance with the sustainability of Eskom. We tried and ensured that they can cover all of their costs to run the business, but their only proviso is that we say they must do that efficiently and prudently, and try to balance and come out with the answers that we come out with.
ALEC HOGG: This latest R8bn that you've now allowed them to claw back. Just unpack that for us, if you would.
THEMBANI BUKULA: What happened with Eskom was we had given them the 25 percent increases for three years, and they came back in the last year and said that they think everything is fine. They can reduce by ten percent, and this now is part of that year, where their sales volumes were much lower. There were expenses that went over what we had set for them as a performance target, but the other areas – when they were not producing electricity they also did not use coal, so there are the areas where they had some savings, so it's the balancing of the figures, mainly in the last year of the determination. If you look at the other two years, the 25, there would have been zero amounts to be given back. It is the third year that they changed things that has brought us to this.
ALEC HOGG: But what does it mean? What are they going to do, physically, to get that R8bn – increase tariffs?
THEMBANI BUKULA: The R8bn that we are giving back to them is going to be added into their allowed revenue, so that will mean that there will be an increase in tariffs. Now, part of what we still have to decide on, is how that R8bn is going to be recouped and over what period. We have to look at the affordability, so if you look at R8bn, it's a price increase of up to five percent, so we are looking at whether it is going to be that five percent all at once or a lesser percentage and spread it over the years. Those are calculations that we are still working on but, at the same time, we have to ensure that they do have enough funds to run the business.
ALEC HOGG: Does it worry you a little that we don't have a permanency, a replacement to Mr Dames?
THEMBANI BUKULA: Yes, I think for any organisation you do need the person who would lead, but I think the one that is acting now is also doing a good job, as a member of the Board; he was not coming in from the cold.
ALEC HOGG: But he isn't an Eskom, or hardboiled in Eskom; he isn't an electricity expert and if you, as the Regulator, want efficiency then management has to be a key part of the determination.
THEMBANI BUKULA: That is very true and I think that the Minister has indicated that by the middle of August, she would have made that appointment. It is key to have a CEO in a company to provide direction, because when people are acting they also know that it is only for this period, so there are no long-term decisions that are made.
ALEC HOGG: Indeed and the new Minister does seem to have a lot of energy, that's for sure. Thembelani, just to close off with, when you look next year, from a business perspective, what kind of increases must people start working into their budgets?
THEMBANI BUKULA: Like I said, on the eight percent, we are looking to add anything between two and five-percent, so I think if businesses can look at a maximum of 13 percent then they would have…
ALEC HOGG: Budgeted correctly…
THEMBANI BUKULA: Yes.
ALEC HOGG: Thank you for coming through to us today. It's not great news but, at least, it's not the worst news; it's not another 25.
THEMBANI BUKULA: Thank you.
ALEC HOGG: Thembani Bukula is the full-time Regulator Member responsible for electricity.