Updating ESKOM's price application defeats public participation

We need less price increases, more transparency, more clean-up and a restructured Eskom

04/02/2019 09:58:58
Odoo image and text block

Today the Organisation Undoing Tax Abuse (OUTA) makes another submission to the National Energy Regulator (NERSA) public hearings to oppose the Eskom price increases.

Eskom applied for an increase of 15% a year for the next three years from April (the MYPD4 application), but on Friday updated this to ask for 17.1%, 15.4% and 15.5% over the three years.

OUTA opposes Eskom’s change to its price application at the end of the consultation process compromises the integrity of public participation. It also suggests that Eskom is failing in its medium- to long-term planning.

Eskom is also applying for an extra R21.624bn as clawback for under-recovery during 2017/18 (the RCA application), which will be added to the tariff hike.

In addition to these increases, NERSA has already approved a price hike of 4.41% for 2019/20, for the recovery of past RCA amounts.

 OUTA proposes that Eskom should not be allowed any RCA clawback and that the MYPD4 hikes should be limited to a maximum of CPI.

OUTA’s objections to the tariff increases include:

NERSA should consider the affordability of tariffs;

OUTA believes the NERSA rules on allowable Eskom expenses are flawed as they don’t minimise expenses which arose from corruption or maladministration, thus         allowing these expenses to be perpetuated;

There is insufficient clarity on the progress of criminal cases arising from corruption at Eskom or legal attempts to recoup losses;

There is a lack of transparency on Eskom’s coal contracts, which enables corruption and overspending which is passed on to consumers;

Eskom should publish its long-term coal procurement strategy, to enable oversight and move away from “permanent emergency” coal procurement;

Eskom’s primary energy costs (mainly coal) escalated more than 500% from R18bn in 2007 to more than R85bn in 2018, which included the corrupt R11.7bn coal contract         to the Guptas’ Tegeta;

There is a lack of transparency in how Eskom calculates the value of its fixed assets which affects the tariff increases;

OUTA objects strongly to Eskom’s attempt to increase the value of its asset base by 76% year-on-year to R1.3 trillion, as OUTA believes it is worth no more than R400bn;

NERSA has not adequately monitored or curbed Eskom’s capital expenditure programme (Medupi, Kusile and Ingula), which has experienced exorbitant cost overruns;

Eskom expects the public to cover all its costs through substantive annual tariff hikes which are supposed to cover the operational and capital costs, but it continues to         increase its debt through questionable borrowings;

Eskom’s energy availability factor is only 69.8% against its target of 78%;

Eskom is overstaffed, with staff increased from 32 674 in 2007 to 48 628 in 2018 while productivity has declined by 35% (measured by the average number of GWh         produced per staff member);

OUTA believes that Eskom has major structural challenges embedded in its business model which cannot be addressed by merely hiking prices; and

Eskom is technically bankrupt so the recent recommendation from the advisory panel to restructure it into separate generation, transmission and distribution businesses         is a crucial step towards sustainability.

OUTA’s presentation to NERSA is here.

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.