Eskom and the DPE respond to President Zuma's call to reduce tariffs in support of economic growth and job creation
Friday, 09 March 2012
The Minister of Public Enterprises, Malusi Gigaba, said today that the lower electricity price increases from 1 April 2012 were the result of a combined effort by government and Eskom to lessen the impact of higher electricity tariffs on consumers and the economy without compromising Eskom's ability to keep the lights on and ensure its long-term financial sustainability.
The electricity industry regulator, NERSA, earlier announced that it had approved electricity tariff increases averaging 16% from April this year, a steep reduction from the 25,9% originally approved.
This reduction has been enabled by concessions by the government as Eskom's shareholder regarding its allowed return on assets, by improvements in Eskom's financial position that have enabled it to rephase and save on capital expenditure and funding without jeopardising timelines on essential projects, and by electricity demand forecasts lower than predicted three years ago.
Gigaba said: "The reductions will have immediate benefits for businesses and households, and followed a request from President Zuma that Eskom investigate ways to reduce price increases over the next few years, in support of economic growth and job creation. The initiative by government regarding its allowed return on assets represents a huge investment in the economy. " He appealed to businesses and local authorities to pass on to their customers the reductions they receive from Eskom, as the lower tariffs were intended to promote job creation and economic growth.
Gigaba said that in order to obtain more predictability in the move to cost reflective tariffs, Eskom would propose a longer period than the standard three years for MYPD3, which comes into effect in April 2013. "While details have yet to be finalised and are subject to public consultation and regulatory approval, this should enable Eskom to ask for lower price increases than had been envisaged, in return for price certainty over a longer period," he added.
Gigaba noted that, despite Eskom's tariff increases over recent years, South Africa continued to have electricity prices that are among the lowest in the world.
Explaining how the price reduction was achieved, he said that government, as shareholder in Eskom, had agreed to defer the shareholder return due to it in the 2012/13 financial year. In addition, a reconciliation of projected and actual recovery in MYPD2 which would have been balanced out in MYPD3, could now be applied in the last year of the MYPD2 period. Coupled with lower demand projections and Eskom's improved financial position which had enabled it to review capital expenditure and funding priorities, these factors had enabled the revised 2012 tariff proposal.
"It is very important to ensure Eskom can manage financially and operationally with this reduced revenue. Before the revised submission was made, we asked if Eskom would be able to maintain its power stations, build new ones up to the completion of Kusile and keep the lights on while also maintaining its financial ratios and its standing with international rating agencies." "The answer to that is yes. This is due to a much healthier financial and operational position, largely as a result of MYPD2 tariff increases, to operational efficiencies achieved and to a careful rephasing of Eskom's funding requirements and elements of its uncommitted capital expenditure programme together with projected savings." Gigaba emphasised that in return for lower electricity prices, all South Africans would have to reduce electricity consumption further, and develop an energy-saving culture.
"As with its programme to keep the lights on, Eskom cannot do this alone. For this lower price path to be sustained, the whole nation is going to have to subscribe to the country pact proposed by the President. Until Eskom's new power stations are on line, we must all collaborate to reduce demand wherever possible, and make it a habit to use electricity wisely and efficiently." Eskom Chief Executive Brian Dames gave the assurance that the lower tariff increase would not compromise Eskom's financial viability, and that the changes to Eskom's capital expenditure and funding timetables would not affect its ability to complete its new power stations on schedule, or to keep South Africa's lights on.
"The decision to propose lower tariffs this year is recognition that there have been significant changes in the economic landscape and in our own operating environment since 2009, when we applied for the MYPD2 increases." Dames said that Eskom would be proposing an extended price path for MYPD3, longer than the usual three-year period, in order to help Eskom achieve acceptable predictable financial and credit ratios within the period.
Paul O'Flaherty, Eskom's Financial Director and Group Executive of Group Capital, noted that capital expenditure savings and rephasing would be achieved through efficiencies and better management. On funding, he said that when compared to 2009 Eskom's access to debt had improved and most of its funding plan had been secured. This meant that Eskom could relax its aggressive policy of advance funding for projects, slowing down the rate of debt uptake to reflect actual cash requirements more closely.
Joint statement issued by Eskom and the Department of Public Enterprises, March 9 2012
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