Eskom

WHY IS OUTA CHALLENGING ESKOM?

ESKOM is a State Owned Entity (SOE) of the South African Government. OUTA believes that – as with so many of our state owned and Parastatal organisations – there are sufficient questionable practices a lack of accountability and transparency within ESKOM, to warrant a full time focus on this SOE to ensure the public receives the best service at the lowest cost possible.

From its once respected position at the turn of the century as a leading (top five) low cost energy generator on a global scale, Eskom has sunk to the bottom quartile of energy production utilities in the world, with electricity costs having escalated by over 500% over the last 10 years.

A decade of inefficiencies and questionable Conduct - click to read more

  • Eskom has seen numerous executive management come and go, with very little accountability for the poor governance and performance emanating during their tenure.
  • Eskom’s maintenance program has deteriorated to dismal proportions.
  • Electricity interruptions and load-sheading, kicked in throughout 2013 and 2014, costing the South African economy several Billions of Rands in lost production.
  • The development of new power generation plants at Medupi and Kusile has seen a seemingly endless and expensive capital expenditure project that is now five years behind schedule and 450% overspent on its original budgeted cost of construction.
  • Exorbitant electricity tariff increases have taken place to keep pace with the growing inefficiencies.
  • Questionable diesel and coal supplier contracts.

WHAT WILL OUTA BE DOING?

OUTA’s brings Eskom into its sights:

For these and other reasons, OUTA’s recently expanded mandate to tackle other and broader inefficiencies within the State’s use of tax-payers revenues, we have decided to engage with and / or challenge ESKOM to become an efficient organization that operates with the best interests of the citizens, at the core of everything it does.

In doing so, we will be looking into the following areas at Eskom:-

  • Holding management accountable for inefficiencies and maladministration.
  • Scrutinizing and rectifying unacceptable supplier contracts
  • Challenging the need for unacceptably high tariff hike increases.

Action Being Undertaken:

OUTA’s Energy Panel - click for more

OUTA have appointed energy analyst Ted Blom to assist in identifying the main reasons for the high price of electricity in South Africa and in order to be able to identify the inefficiencies within Eskom as well as the causes thereof.

In addition to Mr Blom’s appointment, OUTA has assembled an advisory “Energy Panel” to provide input to the OUTA Board on matters relating to the country’s energy policy, laws and the conduct of individuals and organisations within the energy field.

Input to NERSA - click for more

OUTA was represented by Ted Blom in it’s presentation at the NERSA hearings on 18 February 2016, requesting that NERSA do not grant any electricity increase without being able to objectively satisfy itself to which extent Eskom generated, transmitted and distributed electricity efficiently and to adequately assess the impact on the economy, should ESKOM implement the price of electricity at current increase levels requested.

OUTA subsequently, upon further invitation, addressed NERSA regarding the impact of the asset valuation methodology used by Eskom on the price of electricity, as well as a variety of other factors influencing the price of electricity in South Africa.

Research - click for more

OUTA has since commissioned a research team to conduct assessments and benchmarking studies on the costs of international electricity generation in relation to affordability and the environment of energy generation in South Africa.   This will be combined with other research on the direct and indirect cost of rising electricity prices to the South African economy.

Our preliminary investigation indicates that:

  • The costs of coal and diesel paid by Eskom is excessive;
  • That it is probable that Eskom asset values are being incorrectly over valuated, resulting in higher electricity tariffs.

It appears that NERSA deem the 8% per annum increase granted to Eskom as an unconditional 8% increase. OUTA is of the opinion that this interpretation is unlawful as it would result in the regulator not being able to apply its mind if information surfaced indicating that a tariff increase of less than 8% is justifiable or even a decrease in tariffs.

Seek transparency and input on all matters pertinent - click for more

OUTA will request and seek to obtain information from Eskom, pertaining to:

  • All contracts Eskom has with the suppliers of coal, diesel and transport and analyse these to ascertain who may be potentially benefiting from inflated prices of goods and services and what the impact on the public is.
  • Bid documentation resulting in the appointment of the persons providing diesel and coal.
  • Obtain and analyse performance information regarding the generation, transmission and distribution of electricity by Eskom in order to be able to determine whether the costs of electricity generation, transmission and distribution can reasonably be passed onto consumers.

Should this information not be forthcoming from the powers that be, OUTA will launch a Promotion of Access to Information Act (PAIA) application and if further refused, OUTA will contemplate legal action to obtain this information.

Court Application to Interdict 1 April 9,4% Tariff Hike

We believe that the National Energy Regulator of SA (NERSA), is currently applying its mandate and regulatory framework, in a manner that does not sufficiently tackle ESKOM’s inefficiencies is allowing them to pass on their losses to the public, through unacceptably high tariff increases and bail-outs by the state.

OUTA insists that NERSA should fulfill its legislated mandate by not allowing Eskom to recoup from the public monies it has lost through its own poor leadership and management. Instead, they need to hold Eskom’s management to account for its unacceptable and gross failings, whilst providing detailed input on the contracts and turnaround plans for improved processes and service to the people of South Africa.

On 31st March 2016, OUTA will be in court to interdict the Eskom Tariff Hike of 9,4%, granted by NERSA, the basis of which is provided in the attached media release available here

Download the court papers here