Regulatory process crucial in restoring Eskom’s operational and financial position
4 February 2019
Eskom has made an appeal that its operational requirements that pass the regulator’s prudency test need to be compensated through the regulatory process to enable it to recover technically and financially. This message was shared at the National Energy Regulator of South Africa (NERSA) public hearings in Midrand where Eskom also confirmed the revenue requirement remained unchanged, recovered over the lower sales resulting in the percentage increase to 17.1%, 15.4% and 15.5% over the three years.
Mr Calib Cassim, Eskom’s Chief Financial Officer said, “Our stakeholders who include debt providers, rating agencies, auditors are awaiting this crucial decision from our MYPD 4 and RCA applications as an important part of the solution to return Eskom to financial and operational sustainability. As disclosed in our interim financial statement for the period ending September 2018, Eskom’s going concern status is highlighted as emphasis of matter showing the level of financial distress. We are projecting a net loss of close to R20 billion at financial year end and it is clear that while we have maintained operating costs escalations around inflation levels, Eskom cannot solve financial and operational sustainability challenges that it faces alone. This loss situation will continue for the next few years even with the applied-for increases.”
The analysis shared by Mr Deon Joubert, Corporate Specialist, illustrated that Eskom has been providing a subsidy to customers over many years. Eskom had to fund this subsidy through increased borrowings. However, Mr Cassim clarified that this “credit card phenomenon” is not sustainable any longer. The regulator would need to make a decision on whether the electricity consumer or the taxpayer is accountable for efficient costs.
“The regulatory process as well as shareholder support is crucial. The shortfall in tariff cannot be solved through cost reductions alone, and further indebtedness adds to the problem. We were encouraged by NERSA’s own presentation in parliament where they showed that Eskom had not recovered revenue allowed by the Regulator over the MYPD 3 period,” said Cassim.