Aug-Sept 2014 K.indd

23

www.cosatu.org.za • AUG/SEPT 2014

The electricity Sector and Eskom: Latest Developments By Jonas Mosia T he modern economy cannot function without electricity. The objective of creating a better life for all cannot be realised without

stakeholders when allowing Eskom to recover the losses because the amount involved does not exceed some determined threshold. COSATU had objected strongly to NERSA’s awarding of Eskom an average of 25% tariff increase for 2010-2013 period given the negative impact high tariffs have on the workers and the poor in particular and the economy in general. In 2012 the country was relieved when Eskom applied for the reduction of the electricity tariffs from 25% to 16% for 2012/13 fi nancial year. Now Eskom had applied for R18 396 million to cover its over-expenditure for 2010/13 multi-year price determination period. Although the revenue NERSA ultimately allowed Eskom, R7818m, is much lower than the R18396m Eskom had applied for, COSATU still feels strongly that this was a bad decision for the economy. The economy slowed down by 0.6% in the fi rst quarter of 2014 and one of the reasons attributed to this decline by the South African Reserve Bank is high cost of electricity. COSATU calls for the review of NERSA’s Multi-Year-Price Determination Methodology to make it mandatory for consultations with the stakeholders whenever an electricity licensee applies for revenue to cover so called unforeseen costs, irrespective of the amounts involved. It is not enough to make a determination and give reasons later when there was no consultation at all. Otherwise we will suspect that this is a claw-back, by stealth, of the 2012 electricity tariff relief.

Eskom’s application in 2010, NERSA did so with the understanding that Eskom was involved in massive capital expenditure programme which included the construction of Medupi and Kusile power stations, among others. Further that the capital expenditure would be done in an uncertain economic environment. Accordingly, NERSA adopted the following approach for adjusting capital expenditure costs to be incurred by Eskom: • Eskom would report to NERSA on a six monthly basis on its capital expenditure programme; • At the end of each fi nancial year Eskom would provide NERSA with a fi nal reconciliation report of the actual capital expenditure incurred; • Upon receipt, NERSA would record all ef fi cient capital expenditure above or below the approved amount on the capital expenditure carryover account (CECA) If there is over-expenditure, NERSA allows Eskom to recover that from consumers. We know that by now some of the units of Medupi power station should have long started generating electricity. Unfortunately due to the shoddy workmanship by the private sector the coming into operation by these units has been continuously postponement. We also know that the volatile labour relations environment is also been attributed to delays. We now fi nd ourselves in this situation where electricity tariffs have to be increased. Our main problem is that NERSA, according to its rules, has not seen it necessary to consult the

the security of supply of electricity on the one hand and the access and affordability on the other. Without sustainable supply of electricity the country may as well forget about the possibility of changing the structure of the economy from resource-based to an economy where more value-added products are produced. Learning and teaching, particularly as it relates to technology, won’t be possible without electricity. Critical hospital units like the intensive care unit cannot function effectively without electricity. Households cannot save money by buying more perishables when prices are low because without electricity refrigerators will not do the job of keeping them fresh when there is not electricity. This is why our fi ngers should always be on the pulse of developments in the electricity sector. Recently, the National Energy Regulator (NERSA) approved Eskom’s application for electricity tariff increase. NERSA allowed Eskom to recover about R7.8bn for its “over-expenditure” over the 2010-2013 period. This means this increase is over and above the annual 8% tariff increase NERSA allowed Eskom for the period 2013-2017. Let’s go back to the 2010-2013 (the so called Multi-Year-Price-Determination or MYPD2 period) Eskom’s application to understand the R7.8bn NERSA recently allowed Eskom to recover from electricity consumers. When approving

ECONOMY