ESKOM ADJUSTS ITS TARIFF INCREASE APPLICATION TO NERSA
Tuesday, 1 December 2009: On 30 September 2009 Eskom made a submission regarding its price application. The National Energy Regulator of South Africa (Nersa) had asked for public comment until 30 September 2009 and will hold public hearings from 11 - 22 January 2010 and make its final determination on 24 February 2010.
Eskom has submitted a revised tariff application of 35 percent per year (nominal) to Nersa under Eskom's Multi-Year Price Determination (MYPD) for the financial years 2010/11 - 2012/13. This follows a process of rigorous engagement with various stakeholders to come up with a sustainable electricity tariff path to ensure the country's security of supply, without adversely impacting the country's socio-economic progress.
The new application will translate to a price increase of 70c per kilowatt hour over the three year period or an increase of 37c per kilowatt hour over this period at an average of 10c per kilowatt hour per year as opposed to 99c per kilowatt hour in the previous application. The revision will result in Eskom experiencing a cash shortfall of R14bn in 2011/12 and R7.9bn in 2012/13. Eskom will look into other funding interventions to address the expected shortfall.
Mpho Makwana, Eskom's Acting Chairman says, "Revising our tariff application 10 percent or 29c per kilowatt hour down is a reflection of our sensitivity and responsiveness to the social and economic needs of the country. We have taken a decision to ask for a tariff increase that would take the country closer to security of supply and economic success, while keeping Eskom sustainable. However, we have had to ask ourselves pertinent questions as an organisation in terms of our role in the energy industry and our capacity to carry South Africa's energy needs into the future. The answer is that Eskom cannot do it all alone, hence the application comes with significant challenges that we have to manage together as a country."
The significant shift in business strategy will mean the introduction of independent private producers in power generation, phasing of the supply side expansion programme, intensifying energy savings and greater cost efficiency. On the supply side, the new Kusile Power Station (coal) and Sere Power Station (wind) will each be phased one year later, while Eskom recommends that nuclear and the Department of Energy's independent power producer (IPP) programme for peaking plant, be delayed by two years. The next coal plant (Coal 3), is recommended to be replaced by IPPs, with the assumption that a private equity partner for the Kusile project will be introduced within 24 months.
On the demand side, crucial to ensuring security of supply and contributing to reducing South Africa's carbon footprint, the assumption is that all South Africans will work together to save at least 8.5 terawatt hours over the next five years, resulting in a reduced demand forecast and lower electricity tariffs. Further savings of R 12.6bn will be realised from Eskom's operations and primary energy costs. In addition, increasing borrowings by R8.5bn over three years and bringing in R20bn new equity will also contribute to lessening the shortfall.
Having done all of the above, a funding shortfall of R14bn remains. Eskom is committed to addressing the shortfall by intensifying its efforts and increase the required borrowing and by facilitating the introduction of private equity as soon as possible.
"Our collective failure to reduce our energy use and introduce private participation in power generation, would require a review of strategy and will create a power generation gap in the next five years with its consequent disastrous impact on the economy. Together with our employees we commit to achieve the operational efficiencies in this application. We have been working tirelessly with local and international financing institutions to secure debt finance, the most recent facility of R21bn being secured from the African Development Bank," adds Makwana.
"As part of our contribution to greater energy efficiency and reduced carbon footprint, this application includes the roll-out a further 1-million solar water heaters with at a cost of R12bn, of which 20% will go towards subsidies. As part of our shift in strategy, the responsibility for coal haulage roads repair and maintenance will only cover year one and then revert back to the relevant government authority and together with other road users, Eskom will pay its usage fee", adds Makwana.
"Eskom remains committed to delivering on its obligations to ensure that South Africa is able to achieve its aspirations of growth and prosperity. It is with this thought in mind that we submit a revised tariff application that will result in an integrated solution that balances the interests of Eskom, customers and the country. We have also reworked our application to mitigate the adverse impact on the economy and job losses by choosing a longer time period within which to achieve cost reflective tariffs," ends Makwana.
The full application can be found here - PDF. Statement issued by Eskom, December 1 2009
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