Why are you here?

Following reports that public hearings of the National Energy Regulator of South Africa (NERSA) have been cancelled as a result of a “lack of interest” from the public, OUTA – as part of its broadening mandate into matters of tax abuse – calls on the public to give their input on the matter, alongside OUTA’s objections to Eskom’s application for current tariff increases of 16.8% to make up for their sales shortfall and over-expenditure during the 2013/2014 period.

Although the period for public submissions has officially been closed, OUTA believes that not enough was done by NERSA to encourage the public to participate on this matter.

This is an opportunity for you, as a supporter of the public, to add your comments as regards the proposed tariff hike, to affirm that your physical absence at the public hearings should not be construed as an approval of Eskom’s application for a tariff increase. Please use this comment box and, for your reference, we have provided a summary of OUTA’s comments below.

8,766 submissions as of 8:55am 8 Feb

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In response to the proposed Eskom tariff hike

OUTA will be submitting these public comments to NERSA

OUTA’s presentation to NERSA on 5th February 2016, will, amongst other things, highlight the following major concerns in our objection to the Eskom Tariff increase.

  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.
  1. 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.
  1. 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.
  1.  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.
  1. 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.
  1. 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.

We believe that Eskom’s 206 page application (click here to see full document), is a voluminous document which contains a lot of technical and other information, which might make the reading and comprehension of the pertinent issues, difficult for the average person.  As such, we believe it is important to provide the public with a simplified overview of the application, which we have provided below. In addition, OUTA has also listed a number of its concerns that will be raised on 5th February by its representative and energy expert (Ted Blom) at the NERSA Hearing.

Eskom’s Regulatory Clearing Account (tariff increase application) in a nutshell:

  1. According to the Multi Year Price Determination (MYPD3) process, that took place in 2012, NERSA approved Eskom’s revenue forecasts of R142.746 billion for the 2013/2014 financial year. Eskom’s actual sales for the corresponding period was R136.869 billion. This has led to a revenue shortfall of R11.1 billion.
  2. In addition to the budget approved by NERSA for Eskom’s consumption for this same period, Eskom is claiming an additional R10 billion for its over expenditure, which is made up of approximately R8 billion in additional diesel costs and R2 billion in additional coal costs.  This is despite a decrease in the amount of electricity produced.
  3. If this application is granted, it will result in a future electricity prices increase of 16.8%. This in turn, will increase Eskom’s profits from R7.1 Billion to R29.9 Billion for the 2013/14 period at the public’s expense.

Amongst all the noise in the 206 page RCA 2013/2014 claim document are the following main points.

  1. Eskom sales were down 4% from Budget in 2013/14 – Claim of R11.1bn
  2. Despite reduced sales, Eskom cost of Fuel went up by around R10bn (R2bn for coal +R8bn for Diesel). (This does not make sense due to reduced Electricity generated).
  3. Eskom operating  costs were 25% higher than their budget which was approved by Nersa in 2012. (R40bn vs budget of R30bn for 2013/14)
  4. Eskom Capex cost overrun under the MYPD3 is running at R70bn above Nersa approved Budget of some R200bn