No more govt support in the offing – Eskom

30th January 2013

By: Terence Creamer

Creamer Media Editor

  

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State-owned electricity utility Eskom reaffirmed on Wednesday that it had received no indication in ongoing consultations with government of its willingness to inject further equity into the business, or extend further guarantees to assist Eskom in funding its large-scale capital expenditure programme.

CEO Brian Dames told the National Energy Regulator of South Africa (Nersa) panel at hearings in Midrand that its most recent engagement had taken place during the course of the week. He also revealed that the utility had used the meeting to seek confirmation of the shareholder’s position on future support, owing to the fact that the issue had been raised by a number of participants at previous hearings.

Therefore, its third multiyear price determination period (MYPD3) application, in which it was seeking allowable revenue of R1.1-trillion for the five-year period from 2013 to 2018, assumed no further support beyond the R60-billion subordinated loan that had already been absorbed and the R350-billion in guarantees extended in 2010.

CFO Paul O’Flaherty added that this constraint had informed the request for yearly tariff increases of 16% over the five-year period.

He said the support had already enabled it to close what had at one stage been a R300-billion funding shortfall. However, price increases would be required to enable it to cover its primary energy and operating costs, as well as to enable Eskom to repay its maturing debt and cover its interest bill.

However, many participants in the hearings argued that further government support was required, as the current emphasis on price increases could lead to business closures, job losses and social unrest.

Energy Intensive User Group (EUIG) chairperson Mike Rossouw argued that it was time for all stakeholders, especially government to “put skin in the game” to ensure that South Africa’s growth and development objectives were not placed at risk.

He said increases could be limited to 10% a year over the period if government offered further guarantees, Eskom increased its savings aspiration from R30-billion to R100-billion and business moved to improve it electricity consumption habits.

But at 16% a year, many energy-intensive enterprises would struggle to survive, warning that rising prices were already affecting demand and that efforts were need to safeguard consumption in the interests of growth and job creation.

A similar warning was provided by Steel and Engineering Industries Federation of South Africa chief economist Henk Langenhoven, who said rising prices were placing sustainability pressures on metals and engineering firms, which were highly exposed to foreign competition.

Langenhoven, as well as other speakers, also argued that Eskom’s application was at odds with the policy objectives outlined by government in the Industrial Policy Action Plan and the National Development Plan.

Dames said that Eskom was aware that the price increases could negatively affect business, but said its application sought to strike a balance between the needs of the economy and poor consumers and Eskom’s sustainability requirements.

The hearings continue.

Edited by Creamer Media Reporter

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