Big fight over Eskom price hikes looms
Electricity and Energy Minister Kgosientsho Ramokgopa says the government will firmly oppose Eskom tariff hikes of more than 20%.
The minister made the remarks while speaking to the media at the Windaba Conference in Cape Town. On 27 August 2024, Eskom applied to the National Energy Regulator of South Africa (Nersa) for a 36.15% price hike for next year.
“I am confident that we can provide some degree of relief on issues regarding electricity tariffs, but we are not going to soil the Nersa process,” he said.
“I will make a submission as a minister through that process.”
Ramokgopa said a 36% price hike is untenable, adding that anything above 20% is unsustainable. He is confident the government can positively intervene in Eskom’s proposed tariff hikes.
Eskom CFO Calib Cassim recently said the state-owned power utility had no choice but to request the hefty price hike due to its open tender process, which has already been completed for operational aspects such as coal procurement for the next financial year.
The power utility has already committed to pay a certain amount for coal over the next financial year.
“There is the terminology that is used with regard to a death spiral. As the prices go up further, we’ll get less and less consumers staying on the grid and the non-payment rate will increase,” said Cassim.
“At the end of the day, it does cost to generate that electricity. Eskom procures its services via fundamentally open tender processes.”
“If I take, for example, our biggest cost item: coal, effectively for the first year, all of that is already contracted as we went through an open tender process,” he added.
Cassim explained that even if Nersa disallows certain amounts in its revenue application, it will still have to pay these costs.
“Those are costs that are committed to that we have to recover. If through the regulatory decision, there’s an amount that is disallowed from the regulator, we still have to pay the coal suppliers the amount, and then we will have to find that shortfall,” said Cassim.
He added that it can’t borrow money in such a circumstance due to its debt relief conditions.
Nersa published Eskom’s revenue application in late September 2024, confirming the power utility’s request for a 36% price hike.
It also requested an 11.81% tariff increase for the 2026/27 financial year, followed by 9.10% in 2027/28.
The application document also shows that Eskom applied for a 43.55% tariff hike for municipal customers next year, followed by a 3.36% hike in 2026/27 and 11.07% in 2027/28.
“Eskom is making a total revenue application of R446 billion, R495 billion, and R537 billion for FY2026, FY2027, and FY2028, respectively,” it said in its application.
“This includes RCA and court outcome decisions.”
Nersa will now conduct a public consultation process regarding the revenue application before making a decision.
Cassim urged as many stakeholders as possible to get involved in the consultations, which will consider affordability for vulnerable sectors, including indigent customers and some industrial sectors.
“Eskom has made its revenue application based on the costs it will incur to efficiently provide electricity to the customer and it is a critical component in ensuring Eskom continues to provide reliable electricity services while improving its financial sustainability,” he added.