Fight against Eskom’s 66% tariff hikes

The Organisation Undoing Tax Abuse (Outa) has presented its submission on Eskom’s proposed electricity tariff hikes to the National Energy Regulator of South Africa (Nersa). It says the power utility should cut costs rather than apply for hefty price hikes.

It recognises the requirement for Nersa to allow Eskom to recover its operating costs and a fair return on assets through electricity tariffs. However, it rejected the utility’s application, saying it amounts to a 66% increase in three years.

Moreover, this has come after significant price increases over the past 15 years.

“Eskom’s primary focus in its MYPD6 revenue application remains to ensure cost reflectivity by increasing its revenues and electricity tariffs while paying little attention to the many other alternatives,” added Outa.

Outa recommended that Eskom instead reduce its cost structure while improving performance and efficiency.

It highlighted several aspects of Eskom’s operations that could allow for significant cost reductions, including reducing its reliance on coal and diesel and reviewing staff remuneration and Eskom’s headcount.

“It is Outa’s view and position that the Eskom MYPD6 revenue application does not adequately drill
down, identify, set and commit to clear targets for specific cost reductions,” it said.

It said Eskom could make improvements across the following cost categories:

• Primary energy costs
• Staffing costs
• Operation and maintenance costs
• Cost of losses
• Finance costs
• Return of assets
• Depreciation

Regarding its primary energy costs, Outa said Eskom’s application doesn’t demonstrate adequate attention to reducing its overdependence on coal, improving coal procurement management skills, or reducing corruption in coal procurement.

It added that diesel costs also form a major part of the cost of primary energy.

Outa acknowledged that Eskom has made significant strides in reducing its diesel expenditure but said its diesel burn remains significantly higher than expected for efficiently operated emergency and peaking plants.

The civil action organisation wants Eskom to cut staff costs significantly. It cited a World Bank study from 2016 that estimated that Eskom was overstaffed by approximately 66%.

In light of this, Outa recommended that Nersa commission an independent study to:

• Review Eskom’s staff remuneration levels
• Review Eskom’s staff complement and staff levels
• Review Eskom’s staff hiring policies
• Downsize and rightsize Eskom’s staff complement if necessary.

“The President’s emergency plan to end load-shedding and the establishment of the National Energy Crisis Committee headed by the Minister of Energy and Electricity has resulted in the achievement of 240+ days without load-shedding,” said Outa.

It said this shows what can be done with committed leadership and focus.

“It is Outa’s view that a similar dedicated national effort and focus is now required to address issues of energy poverty, energy access, energy affordability, and the price of electricity, which is spiralling out of control,” it added.

Eskom submitted its tariff application to Nersa in late August 2024. Its proposed adjustments include a 36.15% hike in 2025, 11.81% in 2026, and 9.1% in 2027.

They are equivalent to a 66% increase over three years, and Outa slammed the proposed changes in early November.

“South Africa cannot afford this,” said Outa senior project manager Estienne Ruthnam.

“Our submission addresses significant concerns regarding Eskom’s proposed electricity price increases over the next three years, from 2025 to 2027.”

After Eskom submitted its electricity tariff application to Nersa, the regulator published it in late September so that stakeholders could submit comments on the proposals.

Nersa held public hearings on the application between 18 November and 4 December. It expects to decide whether to approve the application on 20 December 2024.