Eskom wants to increase electricity prices in South Africa by 16% over the next two years – much higher than what the National Energy Regulator of South Africa (Nersa) approved.
In March 2019, Nersa approved Eskom tariff increases of 9.41%, 8.1%, and 5.22% for the next three years to 2022.
Eskom has now approached the North Gauteng High Court to allow it to increase electricity prices by 16% over the next two years instead of the approved 13%.
According to Eskom, these lower-than-anticipated price increases will leave it with a shortfall of approximately R102 billion compared to what was applied for.
Eskom said the key reason for this shortfall was Nersa’s decision to offset the envisaged government support of R23 billion per year against the return on assets.
“This resulted in the return on assets in the decision being approximately negative 1% for each of the financial years,” Eskom said.
“This is very far below a reasonable return and worsens Eskom’s financial sustainability.”
Taking the matter to court
Eskom CFO Calib Cassim said the Eskom board decided to take the matter to court after an analysis of the reasons for Nersa’s decision.
“We have put in an application for urgent interim relief, which is necessary to avoid financial disaster for Eskom,” Cassim said.
He said Eskom is seeking a court order to address this financial shortfall in a phased manner.
“In addition, we are seeking the court to review and set aside Nersa’s revenue decision and remit that decision to Nersa for reconsideration,” he said.
Nersa hits back
Nersa hit back in a statement on Friday, saying it is confident that its Eskom pricing determination is consistent with the governing legislative and regulatory requirements.
Nersa said it is guided by, amongst others, the Electricity Regulation Act of 2006 and the regulatory framework.
“If Eskom is not satisfied with the decision, it is at liberty to invoke the National Energy Regulator Act, 2004,” Nersa said.
This empowers any person to institute proceedings in the High Court for the judicial review of any decision of the energy regulator.
Smart partnerships for Eskom
President Cyril Ramaphosa said on Friday that while the government has no plans to privatise Eskom, it will look at smart partnerships to manage the company in a sustainable manner.
These smart partnerships will form part of Eskom’s unbundling plan and will ensure that the state retains full control over transmission and parts of generation.
Eskom is in the process of being restructured into three separate subsidiaries for generation, transmission, and distribution.
Ramaphosa’s comments come after Eskom briefed Parliament on the state of its finances, which were dismal.
Eskom acting CEO Jabu Mabuza said there was a need to develop a long-term energy plan for the state-owned entity in a changing energy landscape.
Ramaphosa agreed, saying it is broadly accepted that Eskom’s current structure is outdated and unresponsive to changes in the energy market.
Eskom’s financial challenges are mainly due to unsustainable operating costs and a mountain of debt.
Things which need to be addressed include expensive coal contracts, Eskom’s high headcount, overall operating inefficiencies, high debt service costs, corruption, and the excessive cost of the construction of Medupi and Kusile.