Antoinette Slabbert
2 minute read
13 Mar 2014
6:00 am

Eskom spending R10bn over budget

Antoinette Slabbert

Eskom is spending money it doesn't have to keep the country's lights on and may be sacrificing its own sustainability in the process.

Image courtesy stock.xchnge

During last week’s load shedding, Eskom switched on its expensive gas turbines, taking its gas-powered spending this year to R10bn, way over the R2.5bn gas budget.

Through the Intensive Energy Users’ Group (IEUG), Eskom’s biggest industrial clients also expressed their concern for the utility’s sustainability.

“It is good for the country, but it might not be good for Eskom,” Brian Dames, outgoing Eskom CEO says.

There are only two sources to replenish Eskom’s empty coffers: the electricity tariff and assistance from the shareholder, says Shaun Nel spokesperson of the IEUG.

Whichever way, the rate payer will ultimately have to cough up.

Dames has disclosed Eskom will most probably go ahead with demand side management beyond what was provided for in the Multi Year Price Determination (MYPD3) that determined its revenue allocation from 2013 to 2018.

The National Energy Regulator ruled that demand side management should be taken out of Eskom’s hands and that treasury should provide for it through the department of energy.

It reduced the R13bn Eskom applied for to R5bn, Eskom spokesperson Andrew Etzinger told Business.

Dames says a presentation will be made to the Eskom board about continued demand side management that will be done at risk. It is not clear what the financial shortfall will be.

This is done in effort to reduce electricity demand and maintain the fine balance between supply and demand, Dames said.

Following countrywide black-outs on 6 March, Dames said the utility would also extent the short-term power purchase agreements with private generators like Sappi and Sasol until May at risk, beyond what was provided for in the MYPD3.

Added to the excessive use of open cycle gas turbines (OCGT) which are actually designed for top-up energy during peaks, Eskom may end up with a huge deficit.

The exacerbate the utility’s problem revenue is dropping as big industrial clients that buy the bulk of its product are repeatedly told to switch off and many customers try to become more self-sufficient.

Etzinger says there are mechanisms to reclaim these amounts – about R10bn – through the tariff. That will mean tariff increases beyond the 8% per annum until 2018 approved in 2013.

However, it is clear that even if successful this will take time that Eskom does not necessarily have. The National Energy Regulator (Nersa) has not yet finalised the reconciliation of Eskom’s 2012/13 revenue and expenditure.

Depending on the extent of Eskom’s shortfall the Nersa review may lead to a re-opening of the tariff determination process with full public participation. “The IEUG expects the re-opening of the tariff process,” Nel says.

This will add at least six months to the process and Nel estimates that the real impact of a tariff adjustment will only be felt two years later and could affect Eskom’s credit ratings.

Downgrading will further increase the cost of Eskom’s debt and so the downward spiral goes.