Eskom tailspin warning

Organisation Undoing Tax Abuse (OUTA) CEO Wayne Duvenage warned that Eskom’s excessive price increases place it in a death spiral.

The organisation is opposing Eskom’s recent pricing application, saying this would result in a 66% price hike over three years.

Estienne Ruthnam, Outa’s senior project manager, urged the National Energy Regulator of SA (Nersa) to dismiss Eskom’s price application.

She said South Africa cannot afford Eskom’s price application, adding that it is excessive and will adversely impact South Africa’s economy, customers, and society.

Ruthnam explained that the electricity increases come on the back of large revenue and price increases for Eskom over the past 15 years.

“Eskom focuses on ensuring cost reflectivity by increasing tariffs and revenue rather than by reducing costs and improving performance and efficiency,” Outa said.

It added that Eskom has not done enough to cut costs and has under-utilised cost-reduction strategies.

Outa urged Nersa to push Eskom towards cost reductions in staffing, maintenance, and energy procurement instead of passing rising costs onto consumers.

It also wants Eskom to adopt a clearer, more transparent approach to budgeting for assets and managing operational costs.

“Nersa should initiate independent studies on Eskom’s socio-economic impact, staffing levels, remuneration, and regulatory asset valuation to provide a balanced view of Eskom’s costs,” it said.

Outa also wants Eskom to shift more rapidly toward affordable, sustainable energy sources and restructure to increase competition.

“Our detailed, data-driven response seeks to persuade Nersa to scrutinise Eskom’s approach,” Outa said.

“It should prioritise South African consumers and ensure responsible regulation of electricity prices that balances economic stability with sustainable energy practices.”

Duvenage said they have previously told Nersa to address Eskom’s overspending during the state capture era.

In a recent interview, he told Biznews that the construction of the Medupi and Kusile power stations cost far more than budgeted.

“Those power stations were budgeted to cost R70 billion each. They are running at three times that,” Duvenage said.

“Eskom’s staff numbers grew by 50%, from 32,000 employees to just under 50,000. However, the power utility did not produce any additional electricity.”

He said Nersa dropped the ball from 2007 to 2018, and the mistakes during that times live in regarding electricity price increases.

“We see this constant request for more money, and Eskom is in a death spiral,” Duvenage told Biznews.

He explained that many South African businesses and household produce their own electricity, which means Eskom will struggle to sell more electricity.

“6,000 MW has gone off-grid after Eskom forced the public to privatise generate their own electricity. That is coming back to haunt them,” he said.

“Eskom will not be able to sell more electricity. However, they still have massive costs and are not controlling them”.

“They are now turning to Nersa and asking it to cover their cost through very large electricity price increases.”

He said Eskom is in a death spiral and that the poorest of the poor who cannot generate their own electricity will suffer the most.

This article was first published by Daily Investor and is reproduced with permission.