Eskom Media Release

OUTA opens public portal to oppose Eskom tariff increase

Following reports that NERSA hearings have been cancelled as a result of a “lack of interest” from the public, OUTA has – as part of its broadening mandate into matters of tax abuse – contracted energy analyst and ex-ESKOM executive Ted Blom, to head up its challenge and objections to Eskom’s 16.8% electricity tariff increase request, to the National Energy Regulator of South Africa (NERSA).

Click here to submit your comment on the tariff hike

Eskom has a claim of R22.8 billion in terms of the Regulatory Clearing Account (RCA) despite making a profit of R7.1 Billion in the 2013/2014 financial year. OUTA believes this is unjust and that most of the claim should have been averted through more prudent management in numerous areas, by Eskom’s leadership.

This is OUTA’s first major project outside the e-Toll matter, and while the organisation will remain focussed on the halting the e-toll scheme, OUTA’s executives believe the request for exorbitant tariff increases by Eskom require serious challenging, along with the exposure of many ill-conceived actions by the parastatal, before it is allowed to simply pass on its problems to a highly stressed public purse.

Notwithstanding the fact that the official period for public submissions is technically closed, OUTA urgently invites the public to have their say on Eskom’s 16,8% tariff hike request, by clicking here where we have provided an easy to understand overview of the Regulatory Clearing Account (RCA) and related issues to this matter. Furthermore, we have provided a template in which the public can express their objections and comments on this issue. The greater the participation, the better OUTA will be empowered to illustrate to NERSA and Eskom the extent of public interest and outrage, thereby refuting the assertion that there is a general lack of interest and thus acceptance by the public.

Ted Blom will be presenting as OUTA’s representative on the points reflected below and other matters at the RCA hearing on the 5th of February, which is part of the public participation process with regards to Eskom’s claim to recoup ”shortfalls” for lower sales than projected, whilst there has been questionable over-expenditure (on Diesel, Coal, and Salaries amongst other things), despite making a profit of R7.1 Billion for the period.

“Besides the strong case that has already been made against the unaffordability of the proposed back payment and future increases, there are glaring concerns that speak to the inefficiencies within Eskom which we believe must be urgently addressed. From its once respected position at the turn of the century as a leading low cost energy generator, Eskom has sunk to the bottom quartile of energy production utilities in the world, with electricity costs having escalated by over 500% in the last 10 years” OUTA Energy spokesperson Ted Blom stated.

Following OUTA’s examination of Eskom’s RCA application, some of the matters and concerns we will be raising are:

  1. Eskom uses its previously inflated and inaccurate sales and demand projections to justify tariff increases in an effort to claw back it’s “loss of income” and over-expenditure: Eskom intends to claim electricity costs and revenue from the public for electricity production it projected, but which it did not in fact generate, and thus did not incur any variable cost in generating.  This is akin to a service provider charging somebody full price for a service it said it would render, but which it in fact never rendered, or claiming from insurance for a loss envisioned, but that didn’t occur.
  2. Eskom intends to pass a preventable and unfair over-expenditure (estimated at R10 Billion) onto consumers:  Eskom questionably employed overly-expensive Diesel Turbines when Coal Fired Infrastructure was not running at full capacity, and intends to pass a R8 Billion bill related to diesel consumption on to consumers. Eskom is compensating for its lack of maintenance on vastly cheaper Coal Fired stations, and the public thus requires absolute transparency on whether it remains necessary to continue utilising diesel turbines when cheaper coal fired generators are not even running near full capacity.
  3. Eskom passes inflated costs of coal, diesel, and transport on to consumers, and absolves itself of responsibility for controlling what it sees as “push through costs” it has “no control over.” The price Eskom has found acceptable to pay its suppliers for coal has increased on average at more than 20% per annum. Furthermore the price it pays for Diesel through middlemen in some instances is over R16/L, even when the landing costs for Diesel has consistently been close to R5/L. In some instances, Eskom pays more than double the price of coal paid by other commercial buyers in the market. As ESKOM is the biggest buyer of Coal and Diesel in the country, it should be able to exercise considerable bargaining power in procuring the lowest cost of Diesel and Coal in the country. We believe that ESKOM’s procurement practices provides favourable enrichment to a series of selected suppliers. The public require transparency on who the suppliers of the high-cost diesel, coal, and transport are, and therefore deemed to be profiteering from the apparent inflated costs.
  4. Electricity Exported at a Loss?: Since the South African power grid is an integrated system – and in light of the greatly inflated cost of generating electricity using diesel Turbines – transparency and scrutiny is required to demonstrate that the South African public has not in effect been subsidising neighbouring countries.
  5. Eskom’s serial failure to maintain its assets since 2010: Eskom needs to clarify the continuous failure to adequately perform maintenance on its assets since 2010, culminating in extensive blackouts and job losses in recent years. The R70bn previously earmarked for maintenance (which has not been executed), needs to be accounted for, and if misspent/misallocated, should be credited to the RCA account, resulting in an Electricity price decrease.
  6. We have concerns surrounding questionable over-expenditure on salaries and the capitalisation of human resource costs, as well as ESKOM’s asset valuation methodology: practices which we believe are not in line with International Financial Reporting Standards (IFRS). These are matters we will be looking deeper into, and will be reporting on at a later stage.

OUTA is hopeful that NERSA will fulfil its legislated mandate by not allowing  Eskom to
recoup monies it has lost through its own poor leadership and inefficiencies, from the public. Instead, they need to hold Eskom’s management to account for its gross failings and provide detailed input on the contracts and turnaround plans for greater efficiencies and service to the people of South Africa going forward.

“If NERSA is serious about executing its mandate and responsibilities to the public, we expect no increase (or possibly even a decrease) in the tariffs.

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In response to the proposed Eskom tariff hike

OUTA will be submitting these public comments to NERSA

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