Eskom to be allowed huge tariff increases

3 July 2009


South Africa’s electricity regulator NERSA has approved an increase in electricity tariffs in order to help national utility Eskom to finance its new build programme.

NERSA has approved an average price increase of 31.3 per cent for Eskom, just short of the 34 per cent requested by the utility, which is implementing a five-year, R385 billion capital expenditure programme.

While both the government and Eskom have argued that the increase in rates is necessary to shore up Eskom’s finances, NERSA’s decision has raised fears over the impact of increased electricity tariffs on the poor as well as on the country’s economy in general.

The tariff hike is an interim measure that will run until the end of March 2010 and will result in an increase in the average standard tariff from 25.24 c/kWh to 33.14 c/kWh. The poorest power users will only pay an additional 15 per cent, according to NERSA.

NERSA has also said that it will study Eskom’s primary energy costs and operating expenditure to ensure that the utility is maximising efficiencies. The poor management of coal reserves and supplies was found to be a major factor in the power cuts that hit South Africa last year.

Eskom is planning to submit a new request later this year to cover the three-year period to the end of March 2012.

Eskom’s ability to borrow money has been hit by the global economic crisis and the downgrading of its credit ratings by ratings agency Moody’s. The gap in its finances, which has been exacerbated by a legacy of electricity tariffs that are set at below-cost levels, is thought to have led the company to start prioritising investments.

Key investment projects underway in South Africa include the construction of two 4000 MW coal fired power plants. In recent months it has secured financing from the African Development Bank and the European Investment bank for its capital expenditure programme, which is designed to increase the capacity and operational efficiency of the country’s power system.




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