Will you accept a massive increase in electricity tariffs?

Industrial action at four of Eskom’s power stations resulted in a shortage of electricity generation recently. Consequently, the power utility declared it would be resorting to load shedding. But where is the wind- and sunshine-generated electricity? What about the 4 GW of reserve margin? Why was the load shedding country-wide and why are defaulting municipalities still being supplied if there’s shortage?

Roger Lilley

Eskom says industrial action at some of its power stations removed 2450 MW of electricity generation, leaving the power utility with no choice but shed load. Load shedding tends to be a last-resort for Eskom because the loss of revenue from units of electricity not sold has a serious negative impact on its already precarious cash-flow.

Apparently, workers who participated in this industrial action used picket lines, intimidation and sabotage to force the power utility to the negotiation table. As much as we may dislike the methods employed, they worked. From being offered a zero percent increase, the workers have been offered a 7% increase plus bonuses and housing allowances.

How the power utility will pay this increase remains to be seen. Perhaps it will start reducing headcount. But I think large tariff increases are more likely. Eskom’s biggest problem is that demand for electricity is falling, costs are rising and bad debts are virtually unrecoverable. Labour costs, the price of coal, and its inability to deal with municipal debt and the theft of electricity are some of its headaches. The ever-increasing municipal debt – which has increased to about R14-billion – is dominated by 20 municipalities.

Yet, if the power utility has 100 MW of wind from its own Sere Wind Farm plus another 500 MW from independent power producers, its shortfall is only about 1850 MW which it should surely should have been able to meet by switching off the 20 municipalities which cumulatively owe Eskom about R10-billion.

This would surely have been a more equitable arrangement than shedding load in areas which actually pay their bills. Eskom loses nothing when it disconnects power from defaulting municipalities, so why should those who do pay be inconvenienced?

I heard a representative of one of the three unions which represent Eskom’s employees say that he was surprised that Eskom, which said it cannot pay – never mind afford – a higher wage bill, could then suddenly offer 7% plus benefits.

Where will the extra money come from? We know that the power utility has a serious financial shortfall. It posted a shocking R5,7-billion loss (before tax) in the year ended 31 March 2018. We know too, that Eskom faced serious liquidity problems earlier this year and borrowed R20-billion from local banks to keep going.

Could the recent decision to impose load shedding be based on the idea that by introducing power disruptions during a labour dispute over pay and benefits, the power utility would have a stronger hand in its negotiations with the energy regulator? It has already publicly stated its dissatisfaction with the regulator’s decision to allow only 5,23% tariff increase when it had applied for 19,9%; and R32,7-billion against its R66,6-billion regulatory clearing account claim. Will the power utility try to bully the energy regulator, through the courts, to allow larger tariff increases? Will it try to show that, in order to keep the lights on, law-abiding citizens must be prepared to cough up for high electricity tariffs? Are you willing to pay more?

Consider this: The utility has demonstrated its inability to manage expenses (R19-billion in “irregular” expenses over six years, R6-billion in the last year); its inability to manage creditors (R10-billion owed by 20 municipalities) and its insistence to carry on with the construction of Medupi and Kusile power stations which, because of the excess cost and time over runs, will ultimately cost the taxpayer over R300-billion and will, in all probability, end up being liabilities (as stranded assets) rather than the assets they could have been were they built on time and on budget.

Furthermore, Eskom intends to increase its debt burden from its current R350-billion to R600-billion over the next four years, to fund modifications to older coal-fired plant – which frankly should be shut down – for air-quality compliance. For context, R600-billion is almost three-and-a-half times Eskom’s annual revenue. Finance costs on R350-billion amounted to R26-billion in 2017/2018; I shudder to think what the finance costs of R600-billion would be. There are some suggestions that the utility will offer an international bond issue, but who would invest in this utility is unclear.

So, I ask again, would you be willing to accept an electricity tariff increase of almost 20%? Or would you opt for newer, more efficient equipment and seek alternative sources of energy to keep your business profitable?

Send your comments to energize@ee.co.za

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