‘Interim tariff increases undermine price certainty’

If energy regulator Nersa approves Eskom’s interim tariff increase, it could cost 2 600 Sibanye Gold employees and 889 contractors their jobs, Sibanye senior vice president: technical services Peter Turner said on Friday.

Speaking on the last day of Nersa’s public hearings in Midrand prior to deciding to approve or reject Eskom’s application on February 25, Turner said if granted, the increase could result in the closure of two of the company’s shafts.

Eskom is applying for an additional R22.8 billion from the regulator, relating to lower than expected revenue and over-expenditure during 2013/14. The application is done in terms of the Regulatory Clearing Account (RCA) mechanism. If the regulator grants an interim increase, it will be added to the annual increase that Eskom was granted earlier.

If Eskom gets what it is asking for, electricity tariffs may increase by 16.6% on April 1 for Eskom direct customers and on July 1 for municipal customers. If it is rejected in totality, it would rise by 3.6%.

Sibanye is one of Eskom’s largest customers, using about 1.6% of the electricity Eskom generates at a cost of R3.1 billion last year. It said Eskom is asking for an increase that would bring the total increase since 2013 to 44.7%, which would be 20 percentage points over inflation for the four-year period.

If granted, electricity would account for 22% of Sibanye’s operating cost next year, up from 9% in 2007 and 19% in 2015, Turner said.

He said the group is actively pursuing power reduction initiatives and will be building a 150MW photovoltaic plant and a 600MW coal-fired power station in the next five years.

Turner said Sibanye, like other companies, has based its forward planning on the five-year Eskom price determination that ends in 2018. He said these interim RCA applications, that has been applied for and granted only once before, impact on electricity price stability, leaving consumers with little clarity on the future price path.

He said if granted, the increase will impact negatively on Sibanye’s operational and life of mine planning and acquisition decisions.

Business Unity South Africa (Busa) representative Martin Kingston said Eskom’s proposed interim increase would render many businesses uncompetitive. He criticised Eskom for a lack of detail in its applications, which he said makes it difficult to interrogate.

Kingston expressed concern about the delay of more than a year in Eskom’s submission and said interim increases result in a lack of price predictability that is the aim of a multi-year price determination.

He warned against double counting in the assessment of Eskom’s revenue variance and said Eskom should not be compensated for variances that are within its control. On this basis, Eskom’s argument that it should be compensated for excess spending on diesel for its open-cycle gas turbines, coal cost and oil and gas cost, should be rejected, Kingston said.

Representing the Aluminium Federation of South Africa (Afsa), Mark Krieg said the current RCA application only applies to the first year of the five-year price period (MYPD3) and more are expected for subsequent years. This, he said, brings into question the whole purpose of multi-year determinations. It undermines the price certainty the methodology seeks to achieve, he said.

He criticised Eskom for “ever wanting more” and illustrated how its costs increased much faster than its revenue by showing the following table:

Source: Afsa

Johannesburg Property Owners and Managers Association (JPOMA) representative Nic Barnes said if the proposed tarriffs are approved, a single mother of two living in a mid-city Joburg flat will be paying 147% more for electricity than in 2008, while her salary and rent both increased by only 60% over the same period.

This shows that people with a reasonable income of between R5 000 and R15 000 per month cannot afford to the pay 16.6% more for electricity in the next financial year that Eskom is asking for, he said.

He said one of the association’s typical tenants would see 4.25% of their household income of R9 590 per month consumed by electricity cost, up from 2.49% in 2008.

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