NEWS

Price Of Electricity May Go Up To Stop Eskom Going Bust

Tariff hikes could be one way to prevent insolvency, says Treasury.

15/11/2017 09:16 SAST | Updated 15/11/2017 09:16 SAST
Mike Hutchings / Reuters
Pylons carry electricity from a sub-station of state power utility Eskom outside Cape Town in this picture taken March 20, 2016. REUTERS/Mike Hutchings

A proposed electricity tariff hike as well as R60 billion in clawback tariffs could help to prevent Eskom's possible insolvency, National Treasury says. Fin24 reported on Tuesday that Treasury was reviewing Eskom's latest report to its shareholder representative, Public Enterprises Minister Lynne Brown.

The report showed that the power utility is on the verge of insolvency.

Fin24 and EE Publishers revealed on Monday that the report said Eskom had only R1.2 billion left in liquidity reserves.

Eskom's financial problems have been exacerbated by what it calls a governance crisis that is scaring off investors.

National Treasury told Fin24 that it was reviewing Eskom's report and considering alternative sources of funding.

The energy regulator, Nersa, still has to announce the tariff increase for 2018/19 and implement the Regulatory Clearing Account (RCA) clawbacks, Treasury reportedly said.

Nersa is currently holding hearings into Eskom's proposed increase of 19.9 percent.

On Monday, Eskom's interim group chief executive Sean Maritz acknowledged that Eskom had financial difficulties but said it could still meet its operational and financial obligations.

Because the 2.2 percent hike in prices of 2017/18 was not enough, Eskom had had to "undertake certain financial commitments" to ensure that it remains liquid, the power utility said.

At the Nersa hearings in October, the Cape Chamber of Commerce argued that tariff increases will speed up the "death spiral" Eskom is currently in, according to Fin24.

Sid Peimer, executive director of the chamber, reportedly said, "Many electricity users, both for domestic and business use, will opt for alternatives like renewable energy. The decline in Eskom sales requires a simple understanding of the demand curve. When electricity prices go up, demand decreases, because the domestic user is already under immense financial pressure."

The Organisation Undoing Tax Abuse (Outa) reportedly told the hearings that Eskom should not be allowed to charge for any tariff hikes because of its "fraudulent over-forecasts".

Outa said: "South Africa's economy can no longer be captured by deliberate and fraudulent over-forecasts which guarantee Eskom massive price increases (its own projections run at 20 percent per year for five years) – which must then be funded by an embattled public with little recourse from an unsympathetic and seemingly biased Nersa."