3 November 2017

Eskom’s proposed tariff increase will add further strain to South Africa’s already struggling economy

Speaking during the first week of the National Energy Regulator of South Africa’s (NERSA) public hearings on Eskom’s revenue application for 2017/18, BUSA CEO Tanya Cohen said any above inflation tariff increase without considering the impact on the economy and decisively addressing the appropriateness of the Eskom business model is not justifiable nor sustainable.

“The proposed tariff increase is not acceptable on a number of grounds including the immediate impact thereof on the economy and consumers and the longer-term impact on the financial stability of Eskom. The application that is currently on the table is untenable. It does not include any proposals as to how the pressure on the fiscus and on the individual consumer could be mitigated,” Cohen said.

BUSA stated that the proposed tariff will have a severe impact on inflation, the economy and employment and is simply not justifiable in the current climate.

BUSA stated that the huge cost of overruns with the Medupi and Kusile mega projects combined with the allegations of extensive corruption at Eskom, that had yet to be comprehensively investigated, cast significant doubt on the ability of Eskom to manage its revenue wisely.  BUSA believes that NERSA has the responsibility to ensure that any licensee operates in a manner that is free from corruption and in line with sound principles of good governance. A credible board and good governance needs to be restored to Eskom as a precondition for any tariff increase.

On the basis of a comprehensive analysis of the application, BUSA believes that increase should not be more than CPI, and only on the basis that appropriate conditions are formulated to ensure that serious attention is given to addressing poor governance and corruption within the entity.

In respect of the longer-term sustainability of Eskom, BUSA urges NERSA and Eskom to accept that the financial risk that Eskom poses to the fiscus requires urgent intervention and should be addressed prior to any future application for tariff increases being considered.

BUSA has repeatedly called for tariff applications of a duration of longer than a year that can provide greater certainty to the public and the economy. BUSA emphasised the need for Eskom to justify all assumptions in the tariff application on a consistent basis.  It stated that any tariff proposals should be made within the framework of a relevant Integrated Energy Plan and Integrated Resource Plan for the country. BUSA stated that was highly concerning that consultation on these plans had not yet commenced, given their importance to the country.