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NERSA's decision bold, responsible, says Eskom

by Michael Appel
on 19 Jun 2008
BuaNews Online
BuaNews Online

Eskom Chief Executive Officer (CEO) Jacob Maroga says the decision by the National Energy Regulator of South Africa (NERSA) to increase electricity tariffs by 13.3 percent is bold, courageous and responsible.

On Wednesday NERSA made the decision to allow Eskom to increase its prices by 13.3 percent, making a cumulative 27.5 percent increase.

"The decision protects the poor, it deals decisively with the regulatory framework environment and sets Eskom and the electricity supply industry on the path to long-term financial sustainability," said the CEO.

He highlighted that while Eskom did not get its request for a 53 percent increase in electricity tariffs granted, the decision by NERSA clearly showed where tariffs in South Africa in the current economic climate should go.

Mr Maroga indicated that Eskom had an ambitious Capital Expenditure (Capex) programme, which involves R345 billion being spent over the next five years.

This adds up to a total of about R1.3 trillion in the long term.

"Our Capex programme is one of the most ambitious in the world, with plans to spend R345 billion within the next five years, and about R1.3 trillion by 2025.

"That is the estimated amount to double up the size of Eskom as we know it today," he said.

The state power utility's Capex programme was, however, never factored into their application for a 53 percent tariff increase.

Eskom's Capex programme would be funded in three ways, namely gradual tariff increases, financial support from government and a huge borrowing programme from national and international stakeholders.

While Wednesday's announcement has taken the combined increase in electricity tariffs to 27.5 percent, Mr Maroga indicated that as per NERSA's decision, the maximum increase for those classified as poor will be a 14.2 percent.

"NERSA agreed to develop a pass-through mechanism for unforeseen changes in primary energy costs [such as coal and crude oil] and others costs. This is a significant step NERSA has agreed to," he said.

NERSA has indicated that over the next three years, if the economic climate remains as it is, electricity prices are likely to increase by between 20 and 25 percent.

The decision, he said, was also based on Eskom's needs to maintain a healthy credit rating, which would enable Eskom to implement the Capex programme.

Mr Maroga said support from government has been strong with Finance Minister Trevor Manuel indicating in his Budget Speech earlier this year that government will loan Eskom R60 billion for its Capex programme.

Six key messages Mr Maroga conveyed to NERSA before their decision included the fact that the key challenge facing Eskom was a constrained electricity reserve margin; serious and material challenges facing existing infrastructure; the need for power stations to be built which required massive funding; demand side reduction from industries and the public; and the need for a regulatory framework that is both flexible and robust to deal with challenging times. - BuaNews


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