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Nene says Eskom to approach Nersa this year, as he outlines R23bn injection plan

Nene says Eskom to approach Nersa this year, as he outlines R23bn injection plan

Photo by Duane Daws

25th February 2015

By: Terence Creamer

Creamer Media Editor

  

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The first installment of an approved R23-billion capital injection for struggling electricity utility Eskom would be made in June, Finance Minister Nhlanhla Nene revealed in his 2015 Budget address. The allocations would be made in two installments, with a special appropriation Bill to be tabled before Parliament once the finance had been raised.

The June injection would be R10-billion, with the R13-billion balance to be made before year-end.

The proceeds would be secured through the sale of “nonstrategic State assets”, such as property, direct and indirect shareholdings in listed firms, non-strategic shareholdings in State-owned companies (SoCs) and surplus cash balances in public entities.

But Nene gave no new insight into which specific assets were being considered for disposal, with the associated Budget Review document indicating that sales would take place only as funding was required, or where there is clear strategic benefit to the State.

The Minister indicated that government was at an advanced stage in preparing to “leverage” the nonstrategic assets, but that the identities and nature of the assets would be announced only once sales had been concluded.

Nene indicated that, if further support were deemed necessary, consideration would be given to an equity conversion of government’s subordinated loan to Eskom.

He also indicated that, to stabilise Eskom’s financial position, the utility would apply to the National Energy Regulator of South Africa (Nersa) this year for “adjustments towards cost-reflective tariffs”.

Fiscal support to SoCs, such as Eskom, South African Airways and the South African Post Office, would have “no net impact on the Budget deficit”, and Nene stressed that they also required a “turnaround in performance and delivery on government priorities”.

The utility had already applied for, and received, claw-back relief from Nersa under the Regulatory Clearing Account (RCA) mechanism for the second multiyear price determination (MYPD2) period, which covered the three-year time horizon from April 1, 2010, to March 31, 2013.

As a result Eskom would be entitled to increase tariffs by 12.7% from April 1, 2015, instead of by the 8% previously sanctioned.

Eskom had also confirmed that it had prepared a RCA application for the first year of the current MYPD3 period and that it would finalise a further RCA for the second year at the conclusion of its financial year, which ends on March 31, 2015. The MYPD3 covers a five-year period, from April 1, 2013, to March 31, 2018.

The tariff implications of Nersa’s January decision to allow Eskom to operate its diesel-fuelled open-cycle gas turbines (OCGTs) for up to 450 GWh a month would also still need to be determined.

The RCA applications would seek to address “variances” between the revenue assumptions made in the MYPD3 and actual costs incurred by Eskom, which have, to date, far exceeded the assumptions.

With the OCGTs operating at 450 GWh a month over a full year, Eskom had indicated that its total costs could rise by 6% at the current diesel prices. Once other variations incorporated into the RCA mechanism are included, the overall cost variation could be as high as 10% of annual revenue.

Eskom spent more than R10-billion on diesel in 2013/14 and expected to repeat that level of expenditure during the current financial year.

Once delivered, Nersa would subject the applications to so-called prudency and efficiency reviews, which could entail pubic hearings.

What was not immediately clear from Nene’s speech, however, was whether Eskom might seek a reopener of the MYPD3 determination, which would definitely trigger a new round of public hearings.

Eskom had applied for yearly increases of 16% over five years, but had been granted 8% a year by the regulator.

Edited by Creamer Media Reporter

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