Eskom interim CEO Phakamani Hadebe
Photo by: Dylan Slater
Eskom has argued its case for the National Energy Regulator of South Africa (Nersa) to grant it the R66.6-billion it is claiming, including for unforeseen expenses and unrealised revenue for the past three financial years.
An Eskom team on Monday kicked off countrywide public hearings in Cape Town on the third Multi-Year Price Determination (MYPD3) Regulatory Clearing Account (RCA) applications.
Eskom has lodged RCA applications with Nersa, claiming it has suffered revenue under-recovery and higher primary energy costs, and needs the money to be sustainable.
Eskom acting Group CFO Calib Cassim said the past few financial years – 2014/15, 2015/16 and 2016/17 – had been particularly challenging ones, with a decline in electricity sales, yet no decline in costs.
“There was a drop in volumes due to various factors, including a downturn in the economy, lower investor confidence, a decrease in the reliance on Eskom, commodity price changes and elements of price elasticity.
The one exception was increased electricity sales to neighbouring countries.
Eskom interim Group CEO Phakamani Hadebe outlined ways in which Eskom is turning itself around and moving towards financial sustainability. He told the hearings “a favourable outcome of the RCA would go a long way” in improving Eskom’s financial position.
“We have spent the money on the implementation of our mandate of providing electricity to South Africans by raising debt as it was not included in the revenue decision and we need to repay those loans accordingly in order to ensure credibility with our lenders.”
The RCA is a balancing mechanism between what was awarded by Nersa on the basis of a forecast and what was actually materialised, shown in Eskom’s audited financial statements.
The hearings are being held amid vociferous objections to sharp tariff hikes in future. An amount of R66.6-billion could translate into tariff hikes of up to 30% to 35% for consumers.
Hadebe stressed that transparent governance was under way at Eskom.
“Those who engaged in fraudulent activities are being brought to account. This has led to the departure of four senior management executives due to serious allegations of misconduct. A further four executives remain on suspension pending disciplinary hearings.”
He said there would be further efforts to combat corruption and pursue justice within the legal framework.
Hadebe said Eskom employees had shown overwhelming support for whistle-blowing on corruption and poor governance. Around 75 investigations out of over 200 investigations had been concluded.
“We are undertaking mandatory lifestyle audits of all employees up to two levels below the CEO. No Eskom official should be allowed to do business with Eskom while remaining an employee of Eskom,” he added.
Cassim said Eskom was not expecting a one-off increase from Nersa.
“Eskom is not expecting a one-off adjustment of between 30% and 35%. This will be phased in as determined by the regulator.”
But he urged Nersa to help Eskom get back to a stable position.
“We expect Nersa will adjudicate firstly on the total requirement of R66.6-billion. Whatever then is deemed to be efficient and prudent will be awarded and then phased in as determined by the regulator. This would take into account the impact on the consumer, economy and affordability, but also not forgetting that Eskom needs to be viable, and taking into account debt obligations.
Cassim has argued that Nersa has based its calculations for Eskom’s financial requirements on assumptions based on earlier years.
“The RCA is backward-looking. It does not forecast into the future. The RCA compares the actuals that came out during the period of multiyear price determination to what was assumed when a decision was made in 2013.
“Throughout this period, our operating costs have exceeded what was assumed in the revenue decision for the respective years. This is a backward-looking application. It has nothing to do with the future.”
Members of a Nersa panel questioned Eskom executives about whether consumers should have to pay for bungles over coal contracts. It also wanted to know what adjustments Eskom had made arising from governance and compliance challenges.
Nersa will conduct public hearings in all nine provinces and will announce its decision on Eskom’s application for the R66.6-billion on June 21.