Electricity price increases

Eskom asserts that it must increase rates in order to pay president Cyril Ramaphosa’s new energy strategy.

Calib Cassim, the chief financial officer of Eskom, told the City Press that the plan published by the president in early July had many positive ideas and initiatives, but did not address finance.

General presidential interventions include:

Increasing Eskom’s recruitment of competent staff and combating the utility’s sabotage and theft;
Improving logistics to enable the timely delivery of diesel-powered turbines;
Permitting Eskom to purchase surplus energy from private providers;
Importing more energy from regional nations;
Implementing a campaign to encourage the effective use of energy in order to reduce demand by 600 megawatts;
Relaxing local content restrictions to enable the implementation of renewable energy projects granted during the so-called Bid Window 5;
Increasing the size of the sixth bidding window and accelerating subsequent rounds;
Before October, announce a strategy to deal with Eskom’s debt.
Cassim said that important elements of Ramaphosa’s new strategy need Eskom to do more maintenance and increase its external power supply, both of which require funding.

The company may submit a request to the energy regulator Nersa to recoup certain operating costs and expenditures via rate rises, which looks to be Eskom’s primary financing source for the president’s plans.

This week, Nersa issued a consultation paper outlining Eskom’s most recent proposal for tariff increases for the 2023/2024 fiscal year. The paper has a forecasted rate calculation indicating a 38% increase next year, which Nersa said may be a possibility if Eskom’s requests are fulfilled.

Eskom’s revenue application totals R335 billion for the 2023/24 fiscal year and R365 billion for the 2024/25 fiscal year.

The company has requested to recover R85 billion for buying electricity from independent sources in 2023/24 and R101 billion in 2024/25, which is one of Ramaphosa’s crucial initiatives.

The organization aims to recoup R20 billion for upkeep.

Notably, Nersa seldom provides Eskom with the requested information for these applications. Eskom requested a 20.5% rise in prices for 2022, while Nersa only approved a 9.61% increase. The electric company is appealing Nersa’s verdict and contesting its procedures in court.

Cassim told the City Press that Eskom was still evaluating how the president’s proposal would impact the company’s operations. However, he said that Ramaphosa’s speech established these costs as government policy, which should be handled as quickly as possible.

Additionally, the government will support Eskom by assuming a portion of its debt.

South Africa’s Treasury is finalizing a proposal to assume a portion of Eskom’s R396 billion debt as part of a process to stabilize the troubled electrical firm, a senior official told Bloomberg this week.

The Treasury has performed financial modeling for the debt transfer and hired attorneys to assist it on regulatory and legal obstacles, such as loan covenants.

According to financial experts, assuming the debt is a step in the “right path” since the utility is “too large to fail.”

Cassim said that the debt takeover will bring temporary relief and that tariffs must represent real expenses in order to be viable over the long term.