KLCBT opposes Eskom tariff increases at hearing

Apart from the allowed tariff increases for 3 years, which kicked in in 2019, Eskom has applied for an additional increase at NERSA to make up for additional operational costs incurred during 2018 /19 financial year.  We made a presentation at the public hearing on 17 February, where stakeholders all opposed any additional tariff increases.  We did not agree with some of the additional costs claimed, and the economy cannot suffer another blow.

Summary of presentation:

• The true purpose of the RCA and MYPD methodology is to protect the consumer against tariff hikes that result in Eskom making too much profit. The intention was never to extort higher and higher tariffs by using this methodology. The methodology allows for the pass-through of PRUDENTLY incurred primary energy costs, and PRUDENTLY incurred under-expenditure on controllable operating costs – not over -expenditure.
• Some of the claimed costs were questionable. The hundreds of millions spent on maintenance, was not maintenance in the true sense of the word, it was practically rebuilding the units! The insurance costs were over inflated because insurance is paid on redundant units that will never be put to work again – they remain on the balance sheet for some reason. The cost of coal jumped sharply but Eskom could not answer us on how much more coal was purchased in tonnes (not the amount in Rands).
• We acknowledge that the year in question Eskom received only a small allowed rate increase from NERSA, but it follows a few years of increases around 30%!
• Eskom is a For Profit Company – they have to act like any other company. It comes with responsibilities. None of us can go back after 2 years and tell our clients “oops, I have under-charged you, please refund me”! If a company wants to remain a going concern the owner has to provide capital to carry on (in this case the government). Our companies cannot get refunds from our clients because Eskom wants a refund from us.
• The effects of corruption & mismangement should not be the burden of the consumer. Rebuilding is not maintenance! Further to this – businesses did not have the luxury of advance warnings of the effects of corruption. We suffered increases of over 30% per year, and loadshedding. Eskom burnt diesel, but so did we! We recommended mothballing of Kusile before, we also advised to write of redundant units – this was not done. Now they come back and ask for hundreds of millions in so-called maintenance and insurance.
• Government intervention is required – Eskom is a critical service provider and a core pillar of the South African (and African) economy. If we wish to restore investor confidence and business confidence, Eskom should operate efficiently without fear of being shut down. We feel, that government, as the owner of the company, should rescue Eskom without increasing rates to cash strapped consumers and businesses.
• This claim is in contradiction with Eskom’s core strategies… (per recent financial statements) “ensure reliable electricity supply…supported moderate electricity price increases through cost efficiencies across the business”! We saw none of that in recent years. Eskom could over a number of years not ensure reliable electricity supply which lead to serious economic factors; an increase over and above the allowable increase, is not modest by anybody’s definition; an attempt at cost efficient management has only seen an improvement very recently, but has a very long way to go.
• The effect to business: Business can only adapt pricing up to a certain point, after that they have to mitigate higher rates by either retrenchment or going to alternative energy, and if that is not possible they can scale down operations or close down and another employer leaves the economy. Both mitigation and closures will lead to sharp increases in umemployment.
• The effect to Eskom will be equally devestating, they will lose clients and revenue as businesses scale down or close, more people will not pay their bills if they cannot afford it, clients will convert to alternative energy and they will lose them forever, Eskom will make themselves redundant by high costs and unreliable service. Municipal debts will increase and they will find options of alternative energy as well.
• South Africa will see a sharp increase in unemployment and business closures, and with that a shrinking tax base. Less exports as SA companies lose global competitiveness, more employers and qualified people will leave SA, service delivery protests without end.

OUR RECOMMENDATION TO NERSA:

• No rate increase whatsoever, the allowed increase was sufficient
• We insist on government intervention
• Eskom should show by reputation that they are able to manage the entity with prudence, before they turn to the consumers again, with more promises of things to be better in future.
• Eskom should cut their losses on outstanding municipal debts – start at day zero and manage the debts going forward – you will never recover the money. Your balance sheet is fooling yourself.
• Make the tough decisions and cut your staff by half or cut your salaries by half – this is what business has to do to cope with the effects of Eskom’s unreliability and price hikes. It is Eskom’s turn… Should you cut salaries by half, your staff wills till earn 50% above the developed world average for your industry!

IN CONCLUSION:

Get your pricing and increases stable with a fixed rate per year

Get your supply constant – if we must have loadshedding, let us have it permanently on a predictable schedule

Cut your municipal debts – forget about the past, start today with a clean slate and get payments in.

Sorry Eskom, we cannot bail you out this time around, we honestly wish we could…