S.Africa's Eskom expected to seek bigger tariff rise next time - CNBC Africa

S.Africa's Eskom expected to seek bigger tariff rise next time

Southern Africa

by Reuters 0

S.Africa's Eskom expected to seek bigger tariff rise next time. PHOTOS: Electrification Online

Cash-strapped power firm Eskom will seek an even bigger tariff increase next time around after South Africa's energy regulator rejected the utility's bid to raise prices in July, industry experts said on Tuesday.

State-owned Eskom is struggling to meet demand in Africa's most advanced economy and has been relying on diesel-fired power stations to shore up supply in a bid to prevent power cuts that have become an almost daily feature in the country.

On Monday, the energy regulator turned down Eskom's bid for a 9.58 percent hike to buy diesel to run its gas turbines and pay independent power producers, saying the application lacked crucial information.

However the regulator, NERSA, said it would "leave the door open" for Eskom to reapply.

Some analysts and industry players predicted the utility would request a tariff rise again, and that it would be higher.

"We think Eskom will go for ... 12 percent (rise) next year. Eskom always asks for more than they need because they expect NERSA to give them less," said Shaun Nel, spokesman for the Energy Intensive Users Group (EIUG), a business lobby group.

EIUG, which represents major companies in South Africa, including mining houses such as AngloGold Ashanti and BHP Billiton, had lobbied hard against a hike, citing the negative impact high power prices had on production.

Peter Worthington, principal analyst for Barclays Africa, also said he expected Eskom to reapply for a rise, and for it to be higher than 9.58 percent.

Eskom spokesman Khulu Phasiwe told Reuters on Tuesday that the utility was considering its options ahead of a meeting with the public enterprises ministry.

"We can review and resubmit the selective reopener which was rejected or we can submit to have the multi-year price determination until March 2019 increased," Phasiwe said.

Eskom previously said it was not "blackmailing or making threats" but needed diesel for its plants and would consult with the government on funding sources.

South Africa's economy grew by 1.3 per cent in the first quarter of 2015, compared with 4.1 percent growth in the previous three months.

The central bank Governor Lesetja Kganyago has said a hike in power costs would likely add 0.5 percent to an already elevated rate of inflation at 4.6 percent, bolstering the case for a lending rate hike.

Eskom's acting CEO Brian Molefe is expected to lead the utility's foray into international debt markets, analysts said.

Standard & Poor's (S&P) cut its credit ratings for Eskom in March to junk, which will almost certainly raise borrowing costs for the utility which said it would raise 3.6 billion US dollars via the international capital markets by March 31 2018.

Eskom bonds have weakened after the tariff rise rejection.

"We view yesterday's news as a credit negative for Eskom," said Barclays Africa's Worthington.