Eskom

Busa calls for inflation-linked Eskom hikes until power market is restructured

Busa calls for inflation-linked Eskom hikes until power market is restructured <www.engineeringnews.co.za/article/busa-calls-for-inflation-linked-eskom-hikes-until-power-market-is-restructured-2019-02-04> *Photo by* Dylan Slater BUSA’s Martin Kingston
4TH FEBRUARY 2019
BY: TERENCE CREAMER <www.engineeringnews.co.za/author.php?u_id=13> CREAMER MEDIA EDITOR
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Business <www.engineeringnews.co.za/topic/business> Unity South Africa <www.engineeringnews.co.za/topic/south-africa-region> (Busa) has urged the National Energy <www.engineeringnews.co.za/topic/energy> Regulator of South Africa <www.engineeringnews.co.za/topic/south-africa-region> (Nersa) to suspend its methodology for setting power <www.engineeringnews.co.za/topic/power> tariffs and to grant Eskom <www.engineeringnews.co.za/topic/eskom> only inflation-linked increases until the electricity supply industry <www.engineeringnews.co.za/topic/electricity-supply-industry> has been restructured.
In a presentation during the Gauteng leg of a nationwide public hearings process, Busa’s *Martin Kingston <www.engineeringnews.co.za/topic/martin-kingston> *said that, while the principles of the methodology were sound, “it may be appropriate to suspend it until such time as the electricity supply industry <www.engineeringnews.co.za/topic/electricity-supply-industry> is restructured, especially as tariff setting is open to manipulation until return on the regulatory asset base (RAB) is fully recognised”. ADVERTISEMENT
Eskom <www.engineeringnews.co.za/topic/eskom>’s operating model, the business <www.engineeringnews.co.za/topic/business> body argued, was not fit for purpose and the utility should be restructured. “This cannot be done in isolation of a restructuring of the whole electricity industry <www.engineeringnews.co.za/topic/electricity-industry>,” Kingston argued.
Busa envisaged a “comprehensive” reconfiguration of the sector in the longer term. Nevertheless, it saw a functional, rather than legal, separation of Eskom <www.engineeringnews.co.za/topic/eskom>’s generation, transmission and distribution units as a possible short-term remedy and a precursor to full legal separation. ADVERTISEMENT <www.engineeringnews.co.za/adcentre/rv/en/www/delivery/ck.php?oaparams=2__bannerid=3862__zoneid=647__cb=64f357515b__oadest=http%3A%2F%2Fwww.veaseys.co.za>
President *Cyril Ramaphosa <www.engineeringnews.co.za/topic/cyril-ramaphosa>* established a task team in December to assess ways of addressing Eskom <www.engineeringnews.co.za/topic/eskom> sustainability problems.
The task team presented a plan for splitting the utility into its component parts to the African National Congress’s January lekgotla and Ramaphosa is expected to make a pronouncement on the utility’s restructuring imminently, possibly during his State of the Nation address on Thursday night.
In a fully restructured energy <www.engineeringnews.co.za/topic/energy> supply industry Busa said independent power <www.engineeringnews.co.za/topic/power> producers (IPPs) should no longer supply power <www.engineeringnews.co.za/topic/power> to Eskom <www.engineeringnews.co.za/topic/eskom>, but rather compete with the utility. In addition, small-scale embedded generation projects <www.engineeringnews.co.za/topic/projects> would be encouraged.
Busa also express discomfort with “last minute changes” introduced by Eskom <www.engineeringnews.co.za/topic/eskom> to its submission. The adjustments increased the size of the hikes being sought by the utility during the three-year horizon of the fourth multiyear price determination (MYPD4) period, which would run from April 1, 2019, to March 31, 2022.
Initially Eskom <www.engineeringnews.co.za/topic/eskom> requested three yearly hikes of 15%, but has since revised its request to 17.1%, 15.4% and 15.5%, primarily as a result of a downward revision to its sales forecast for the period.
The utility also made adjustments to its production plan for the period, including: the shutting of 12 additional units at the Hendrina, Grootvlei and Komati coal <www.engineeringnews.co.za/topic/coal> power <www.engineeringnews.co.za/topic/power> stations; a further lowering of the expected energy <www.engineeringnews.co.za/topic/energy> availability factor (EAF) from its coal <www.engineeringnews.co.za/topic/coal> fleet for the MYPD4 period; and revisions to the scheduled introduction from new capacity from the Medupi and Kusile projects <www.engineeringnews.co.za/topic/projects>.
“We are concerned that consumers have been given insufficient opportunity to interrogate fundamental last minute changes,” Kingston said.
Busa was equally concerned with Eskom <www.engineeringnews.co.za/topic/eskom>’s treatment of the RAB-related recoveries, suggesting that tariff setting was “open to manipulation”.
The organisation noted that Eskom <www.engineeringnews.co.za/topic/eskom>’s RAB had been revalued from about R700-billion previously to R1.25-billion and the remaining life of the assets have reduced, with a significant impact on return on RAB and depreciation.
“We urge Nersa to perform an independent review of the revaluation. In the interim, a revaluation should be disallowed.”
Eskom <www.engineeringnews.co.za/topic/eskom> warned of losses of about R20-billion for 2018/19 and 2019/20 even in the event of receiving the hikes it was currently seeking and cautioned that its going-concerned status would be imperilled without substantial increases.
CFO Calib Cassim <www.engineeringnews.co.za/topic/calib-cassim> also described calls for an inflation-linked hike as unrealistic.
He noted that Nersa had already approve a 4.41% hike for 2019/20, following its adjudication of Eskom <www.engineeringnews.co.za/topic/eskom>’s Regulatory Clearing Account applications in 2018. In addition, full cost recovery against current and future IPP contracts would add a further two percentage points to the 2019/20 increase.
“Therefore, in reality, we are already at the top of the inflation target, without giving Eskom <www.engineeringnews.co.za/topic/eskom> a single increase for its own cost of operations <www.engineeringnews.co.za/topic/operations>.”
EDITED BY: CREAMER MEDIA REPORTER

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