Eskom short R350 billion and South Africans will need to cover the losses

Eskom’s submission to the Standing Committee on Appropriations (SCOA) has revealed some shocking figures on Wednesday 2 September. If we ever thought Eskom was nearing a position of stability, we may want to rethink that.

According to the presentation, the power utility is battling a shortfall of R350 billion based on the National Energy Regulator of South Africa (Nersa’s) tariff decisions, which ultimately means that despite rolling blackouts and a pandemic that is not yet over, South Africans may need to fork out some more. 

NERSA’S DECISIONS RESULT IN ESKOM REVENUE SHORTFALL OF R350 BILLION 

Let’s unpack this, shall we? According to Eskom, Nersa’s decisions from multi-year price determination (MYPD) 3 to MYPD 4 have resulted in a revenue shortfall. MYPD 3 has been listed as the years 2014 to 2018 and MYPD 4 has been listed as the years 2020 to 2022. According to the presentation, Eskom’s application and Nersa’s decision did not match up, therefore, creating a shortfall of R350 billion. 

According to the power utility, the tariff price did not allow Eskom to build cash reserves for the new build programme, resulting in a hefty loss.

According to Eskom, the Multi-Year Price Determination (MYPD) Methodology seeks to ensure Eskom’s sustainability as a business is balanced with the impact on the economy where objectives include:

• To ensure Eskom’s sustainability as a business and limit the risk of excess or inadequate returns, while providing incentives for new investment;
• To appropriately allocate risk between Eskom and its customers;
• To provide efficiency incentives without leading to unintended consequences of regulation on performance;
• To provide a systematic basis for revenue/tariff setting; and
• To ensure consistency between price control periods. 

ELECTRICITY PRICES ‘TOO LOW’, SAYS ESKOM

According to the power utility’s presentation, debt continues to grow despite price hikes, pointing to the fact that prices may need to be increased with a bit more vigour. Under the table “price levels and debt increasing,” one can see that although prices have increased, it has not done anything in bringing down the amount of debt. 

“The average price has increased five-fold whereas debt has grown by nearly 10-fold over the same window,” it said. 

A recent electricity tariff benchmark didn’t make the situation any better for Mzansi’s consumers. It indicated that Eskom’s price of electricity is one of the lowest in the world. 

The World Bank undertook an analysis of electricity utilities in 39 countries in Sub-Saharan Africa (SSA). The analysis concluded that Eskom’s unit costs are very low relative to other SSA utilities — the third-lowest to be exact.

According to the presentation, all are pricing their electricity at unsustainably low levels and are thus, in or are heading, to significant financial difficulties. The utility maintains that its under-pricing is the main contributor to its hidden costs. Gear up South Africa, price hikes may be on the horizon.