As public hearings continued into State-owned power utility Eskom’s request for higher electricity tariffs, CEO Brian Molefe on Friday conceded that a spike in prices would impact the entire economy.

Eskom had applied for a 16% hike to recover the billions of rands it spent on diesel power generation and it was up to the National Energy Regulator of South Africa (Nersa) to take into account protection for South Africa’s poor when determining the application.

Eskom’s application for the evaluation and approval of the claw-back of the regulatory clearing account balance for the 2013/14 financial year equated to a R22.8-billion adjustment.

Where the increase was sourced from would be at Nersa’s discretion, with Molefe assuring that it did not have to “come from everybody”. The regulator currently determined the differential tariffs for specific companies to stimulate investment.

Speaking at The New Age Business Briefing, in Sandton, during which a mining-focused discussion turned to coal supply to Eskom, Molefe said work was under way to reduce the cost of primary energy enough to prevent the need for another substantial hike request in two to three years’ time.

Eskom, which had sidelined its traditional cost-plus model, was currently sourcing coal on an ad-hoc basis for some R400/t while it mulled bids for a long-term supply agreement to replace its 40-year-old cost-plus coal supply contract with Exxaro’s Arnot mine.

Molefe, again justifying the decision to terminate the supply contract with the mine, said the utility was currently securing coal for the nearby power station at a far lower rate than would have been possible from Arnot, which was expected to increase from the current R900/t to well over an unaffordable R1 300/t should the contract be extended.

Eskom was using coal from Glencore, South32, Exxaro and several other suppliers to power the Arnot power station on a short-term basis until a reasonable and competitively priced bid for long-term supply was selected.

Further, the group was currently stockpiling coal bought from Arnot to avoid paying a penalty under a take-or-pay agreement and to ensure excess supply that would provide Eskom more leverage to bring coal prices down.

Eskom’s historical penalty provision would be written down this year as it stored excess supply for when the Medupi power station was ready.