Financial Mail and Business Day

Horns lock over Eskom clawback

• If successful, its bid for revenue will push up tariffs for consumers

Denene Erasmus Energy Correspondent

Organisations representing SA’s largest industries are pushing back against a revenue clawback Eskom is asking the National Energy Regulator of SA (Nersa) to approve for the 2021/ 22 financial year.

Eskom is hoping to recover almost R24bn through a regulatory clearing account application (RCA) submitted in April.

If approved, the R24bn RCA will be added on top of future electricity tariff increases, but business leaders say the stateowned power company should be allowed to recoup only a fraction of this amount.

Through the RCA, Nersa lets Eskom recoup historical cost and revenue variances to enable the utility to manage the risk that it will realise excess or insufficient returns when compared with the Nersa-approved revenue it is allowed to recover from electricity consumers.

Any amounts that Eskom is allowed to claw back via an RCA application in a given year are added to its allowable revenue in future years.

Eskom can, for example, recoup expenditure on operating costs such as higher-thananticipated diesel purchases to run its open cycle gas turbines.

Last year Eskom exceeded its diesel budget by about R6bn, spending R21bn on diesel to compensate for the poor performance of its coal-powered fleet and keep load-shedding from exceeding stage 6. It can also recoup cost and revenue variances due to higher- or lowerthan-anticipated sales volumes.

The Energy Intensive Users Group (EIUG) — which speaks for large, industrial electricity users that account for about 40% of the country’s demand — said based on its analysis Eskom should not be allowed an amount higher than R1.1bn.

Business Unity SA (Busa) believes Nersa should, at most, approve an RCA of R1.7bn. Both organisations argue that consumers should not be made to pay for Eskom’s “inadequacies”.

“We accept Eskom needs money to get out of the crisis it finds itself in, but [it] should be doing more to deal with inefficiencies,” said EIUG CEO Fanele Mondi.

The EIUG believes the application is premised on a view that Eskom should be guaranteed revenue, irrespective of its performance or the causes of cost drivers and reasons for sales losses. “Guaranteed revenue is not the intention of nor in the spirit of the price determination methodology, especially when Eskom’s poor performance is the significant contributing factor to lower consumption and sales. Eskom’s poor strategic choices cannot forever be made a burden for consumers,” Mondi said.

The EIUG does not agree with Eskom’s assessment that its R9.5bn revenue shortfall (compared with Nersa’s revenue decision for 2021/22) was due to external factors such as the impact of the Covid-19 pandemic on energy demand.

“The more logical answer for a significant portion of the R9.5bn variance is due to discouraged sales and load-shedding ... which are a direct result of Eskom’s poor performance.”

Both the EIUG and Busa argued that Eskom should not be allowed to recover the full open cycle gas turbines cost overrun of R9bn. Instead, Eskom should

be allowed to recover only those costs based on the standard tariff rate, which is about one-third of the cost of electricity produced by the turbines.

“If the performance of the baseload was better, excessive use of open cycle gas turbines would not have been necessary — this is directly in Eskom’s control,” Busa said.

Both organisations want to see Eskom and Nersa account more thoroughly for the effect corruption had on the utility’s financial performance.

“Due consideration must be made to Eskom’s battles with corruption where billions [of rand] reportedly vanish each month. Recoveries remain shrouded, highlighting the need for transparency in Eskom’s quest for financial stability. There is no mention of this fact in the RCA,” Busa said.

The Minerals Council SA, in its submission during public hearings, highlighted the risk the additional increase in electricity tariffs would pose to mining companies if the RCA application is granted in full.

Given that about 15% of total mining input costs are attributed to electricity, the RCA has become a source of “price instability and unpredictability, which ultimately impacts on investment decisions of mining companies”, the council said.

According to its calculations, if the R23.8bn RCA adjustment were introduced in 2023/24, it would have translated to a tariff increase of 30% instead of 18%.

Nersa, in a consultation paper, asked stakeholders to comment on a suggestion that RCAs be implemented with a two-year lag between approval and implementation.

Business leaders said this delay could only add more uncertainty around future electricity tariff increases.





Arena Holdings PTY