Antoinette Slabbert
2 minute read
17 Sep 2014
12:00 pm

Eskom ‘overstating financial woes’

Antoinette Slabbert

Eskom is being disingenuous by pegging its revenue shortfall at R225 billion – an overstatement of 100% – a grouping of its biggest industrial customers that consume about 45% of its output has claimed.

FILE PICTURE: Power lines. Picture: Nardus Engelbrecht/SAPA

Energy Users’ Group (IEUG) spokesperson Shaun Nel says Eskom persistently bases its 16% funding shortfall on estimations of what it believes it needs rather than on regulators’ prudency tests that claim its funding gap is 8%.

A deaf ear

He believes Eskom’s R225 billion figure is a clear sign it just does not get the message coming from he National Energy Regulator of SA (Nersa) – it needs to become more efficient and cost-effective.

Chris Hart, chief economist at Investment Solutions, agrees: “Any other business would price its product according to what that market can afford and adjust its operations to that.”

Eskom, on the other hand, starts by deciding how much money it needs, he says.

Nel and Hart were reacting to government’s weekend announcement of an aid package, including a further R50 billion finance gua-rantee, an equity injection that has not yet been quantified and support for further tariff increases through applications to the national energy regulator.

Nel says the IEUG considered the 8% increase too low and calculated 10% would be enough for Eskom to achieve stand-alone investment grading in seven years. “That could be accelerated to five years if Eskom achieved further savings,” he says.

“We always knew 8% would not be enough and it was a matter of time before Eskom would need government assistance,” Nel says.

National Treasury referred to the shortfall, but did not put a number to it, but Public Enterprises Minister Lynne Brown seems to have accepted Eskom’s figure.

The extent of the shortfall will be crucial in determining the extent of further assistance.

Hart says Eskom was inefficient at four levels.

On a regulatory level it is forced to purchase electricity from private power producers, but has no control over the prices. These prices should be determined by market forces, Hart says.

Eskom’s capital structure is inefficient, as is its operations, with high salaries.

The fourth level of inefficiency is procurement, which includes Eskom’s new build programme that has seen huge delays and cost overruns.

Downgrade danger

Economist Mike Schüssler says government’s additional R50 billion guarantee will increase its borrowings and guarantees by 1.4% to 53.4% of GDP.

“Government should be careful its assistance to Eskom – aimed at preventing Eskom [from] being downgraded – does not lead to the sovereign being downgraded,” Schüssler says.

An alternative would have been for Eskom to sell its power stations.

“Pension funds would have jumped at the opportunity, because the demand for electricity will always be there.” It should also focus on collecting its debtors, managing its creditors and buying all the available energy from private power producers, Schüssler says.