Eskom pleads for tariff hike, big business warns of job losses - CNBC Africa

Eskom pleads for tariff hike, big business warns of job losses

Southern Africa

by Thabile Manala and Christine Mhundwa 0

Eskom says the application for a tariff hike serves to mitigate against further economy losses caused by load shedding.

Eskom says the application for a tariff hike serves to mitigate against further economy losses caused by load shedding.

National Energy Regulator of South Africa (NERSA) begun its public hearing today into Eskom’s 25.3 per cent tariff increase application.

Energy Analyst, David Lipschitz, said that they have been in this situation before in 2007.

“We’ve had increases from 52 cents per kilowatt an hour to R1.90 per kilowatt/hour. We’ve been told that the increases are to pay for the new power stations and diesel generators,” he said.

Lipschitz told CNBC Africa that even though they have invested “hundreds of billions of rands” in these power stations, there has been no change and the projects are not complete. “A lot of money has been wasted.”

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With the alternative of renewable energy being the new wave, Eskom said in their presentation today that alternatives cannot be employed in the short term.

According to Lipschitz, “Eskom has a culture of building the biggest and best power stations often building power stations that have never been built before with higher pressures, higher temperatures in the production of the energy.”

However, Lipschitz cited that worldwide energy expert, Amory Lovins, said there’s no economies of scales above 800 megawatts therefore Eskom should be building 12 small power stations instead of two big ones.  

A question was presented at the hearing as to why Eskom does not sell its shares. In response, the power utility’s interim CEO, Brian Molefe said the parastatal’s financial phases are such that if investors come in now they will simply enjoy the cash benefits of the new capacity (when Medupi and Kusile come online) without having gone through the pain of forking out for that infrastructure.

Lipschitz said, “If we were not having load shedding I would be more amenable to having a price increase. But, we are having a price increase and I don’t see how that would help.” 

He added that Eskom had become more “brazen” because South Africa has a culture of acceptance and apathy. He added that another player in this dynamic is the municipalities which hike electricity prices at the same rate as Eskom do to compensate for the increases which Lipschitz describes as “unfair”.

“I think we could have a 10 to 20 per cent decrease of electricity costs at the municipal level and the municipals would still be making a lot of money.” 

Molefe said Eskom was active on domestic capital markets and that it planned to return to the international capital markets later this year.... Not necessarily dual listings but private placements. He said there were many domestic and international institutions willing to engage in private placements with the power utility. 

He further explained that an environmental levy - that Treasury will soon pass - has not been gazetted yet, therefore the 2 per cent or so that was factored in the application for that levy may not be needed after all.

Meanwhile, South Africa’s ferrochrome sector warned of jobs losses due to power hikes.

The industry could face a closure of smelters and possibly as much as 200,000 job losses due to higher electricity prices, an industry body said.

"The increase in electricity prices will further increase production costs and lead to the closure of most smelters in South Africa," said Jacobus Zaayman, a representative from the Ferro-Alloys Producers Association at a public hearing to consider power utility Eskom's application for a tariff raise. 

The South African gold producer, Sibanye Gold, warned that Eskom's proposed electricity price increase could lead to mine closures and job losses.

"The unsustainable electricity price increases will lead to diminished operating performance, early closure of mines, job losses and reduced capital investment," said Peter Turner, a Senior Vice President of Sibanye Gold at a public hearing to consider Eskom's latest application to hike tariffs.

*Additional reporting by Reuters

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