The Nersa hearings for Eskom’s electricity tariff hike request continues today amid calls for the government to unbundle the state-owned utility.
In today’s hearings, the Minerals Council is expected to tell Nersa that Eskom’s proposed 15% electricity tariff hike will tip the industry into catastrophic losses and result in job layoffs rivalling the tens of thousands shed between 2006 and 2017 when tariffs increased as much.
The council is also likely to suggest that Eskom’s financial problems can only be solved through a fundamental restructuring of its business via the assistance of the private sector, reported miningmx.
According to Henk Langenhoven, the Minerals Council’s chief economist, a tariff hike of this proportion is not the solution and will be a “tipping point in mining and the economy.”
“A price increase on its own is not a solution. It [Eskom] has to be restructured and the state has to intervene,” he advised.
Based on council research, Eskom’s revenue from mining industry clients would decline to R19 billion in 2020 from R24 billion currently if tariffs were lifted 15% a year – a compound increase of about 50%. This excludes the 4% Eskom is allowed to recover in previous financial years in terms of its regulatory clearing account approved by Nersa.
There is an expectation among Minerals Council executives that South African president, Cyril Ramaphosa, could use the State of the National Address (SONA), which is scheduled for February 7, to motivate for the restructuring of Eskom.
“Restructuring and privatising the elements of supply is the direction that Eskom needs to go in,” said Roger Baxter, CEO of the Minerals Council.
A fundamental restructuring was the message delivered during a meeting between the Minerals Council and other CEOs on January 29, he explained. “The notion of large utilities controlling electricity supply is not the norm now in the world,” said Baxter. “But the ‘P Word’ (privatisation) has always been a problem in South Africa,” he added. Read more: Mining sector approves of Eskom unbundling
Will SONA unbundle Eskom?
The thinking is that the activities of generation and distribution ought to be shared with the private sector whilst Eskom would continue to manage the transmission of electricity. “It’s one of those critical issues. We would hope it is addressed,” said Baxter when asked if Ramaphosa ought to tackle the issue.
“Having a plan on the table is critically important. Rating agencies are looking for clear direction, but we also have to acknowledge that restructuring ESI (the electricity supply industries) is a five to 10-year process,” he said.
Speculation is rife that Ramaphosa might allude to possible privatisation after he told delegates at Davos that: “We are currently developing a response to the financial and operational crisis at the country’s electricity utility, Eskom. In the next few weeks, we will be announcing a set of measures to stabilise and improve the company’s financial position and to ensure uninterrupted energy supply”.
BusinessLive citied public enterprises minister, Pravin Gordhan as saying that Eskom’s future would be decided within the month. “Should we unbundle Eskom into three entities as is the practice worldwide?
“We are going to have that debate soon and move beyond debate if we are to have Eskom as a credible entity both financially and operationally in a month’s time,” Gordhan told Business Unity South Africa’s economic indaba in Midrand.