OUTA is alarmed at the reports that Eskom has upped the value of its assets to
R1 trillion, which is a way of manipulating a huge price hike.
OUTA – 31 August 2018
Today Moneyweb reports that Eskom wants an average tariff increase of 15% a year for the next three years. This is in addition to the recently approved backpayment of R33 billion, through the Regulatory Clearing Account (RCA), which goes onto our bills from next year; the two increases could add 20% a year to the tariffs.
This is what Eskom intends asking the National Energy Regulator (NERSA) to approve, says Moneyweb, which says it has seen the soon-to-be- submitted application for the next three-year cycle of the fourth multi-year price determination (MYPD4).
While this is a frightening prospect for consumers, OUTA believes that even those tariff increases won’t cover Eskom’s debt repayment obligations.
Asset base revalued
Eskom bases the 15% hike on its revalued asset base, up from R702bn in the last price application to a starting point of R1 288bn.
“OUTA is extremely perturbed by the grossly over-valued asset base used as the basis to calculate the 15% tariff increase. We ask NERSA to reconsider its decision to permit Eskom to do asset rebasing, by ensuring that Eskom adheres to international financial reporting standards (IFRS),” says Ronald Chauke, OUTA’s Portfolio Manager for Energy.
Economists have told OUTA that, if best practice was applied along with stringent oversight over Eskom, the real asset valuation should not exceed R400bn given the age and book value of most of Eskom’s coal fleet and other assets.
Eskom also assumes it will sell more electricity over the next three years, despite its ongoing sales slump.
OUTA believes that a steep increase in the price of electricity is hardly going to encourage sales and this is a way of padding the application to allow another RCA backpayment in the future.
“OUTA rejects the high electricity price hikes proposed by Eskom based on run-away personnel and primary energy costs and will continue to oppose the offloading of these uncontrolled costs onto already over-burdened consumers,” says Chauke.
Eskom’s debt by March was R387bn and is expected to be R600bn within four years, leading to the utility considering options for managing this to avoid defaults.
“Taking shortcuts like the asset revaluation to resolve deep-rooted structural problems is not ideal, as it could lead to a Steinhoff-type situation,” says Chauke.
OUTA is a proudly South African civil action organisation, that is purely crowd funded. Our work is supported by ordinary citizens who are passionate about holding government accountable and ensuring our taxes are used to the benefit of all South Africans.
Natasha Mazzone MP, DA Shadow Minister of Public Enterprises
31 August 2018
We have learned today of Eskom’s proposal to increase the price of electricity by 15% per year for the next three years. This is an attempt to make the public pay for Eskom’s corruption and inefficiency and it must be rejected out of hand.
South Africans are already struggling with the VAT increase, relentless fuel price hikes and the spiraling cost of basic goods. People simply cannot afford a steep electricity price increase.
The terrible mismanagement and blatant corruption of Eskom during the Zuma years has sent Eskom into a debt spiral, with costs far outstripping revenue. Eskom is owed R13 billion by municipalities around the country. Recently, the unions managed to negotiate an above-inflation wage increase and once-off bonus that will send Eskom into even more debt.
The current Eskom board is doing its best to turn Eskom around and we support its efforts. However, we cannot support forcing the public to pay for Eskom’s inefficiency and corruption.
In the short term, the Eskom board needs to find innovative ways to increase revenue and cut costs. Eskom needs to cut its inflated wage bill, reclaim its municipal debts, halt illegal connections, encourage high-end industrial users back into the fold and consider options for exporting surplus electricity.
Ultimately, the only way to keep the cost of electricity down is to introduce market competition in the generation and/or transmission of electricity. The time has come to seriously consider the restructuring and privatisation of Eskom.
The people of South Africa are already battling to make ends meet. It is simply unfair to make people pay for the corruption, inefficiency and bloatedness that has come to characterise Eskom.