ESKOM has launched a fresh court application seeking to claw back R23billion from consumers in tariff hikes, which analysts have warned will lead to more double-digit electricity price increases in 2021/22 and beyond.
Eskom has argued in court papers, filed in the Gauteng High Court, for section 2 and 3 of a court order it won against the National Energy Regulator of South Africa (Nersa) on July 28, which allows the power utility to get back a total of R69bn from consumers through electricity price increases, to be made immediately effective so it can implement the recovery of the first of three instalments of R23bn over and above next year’s Nersa approved 5.22% tariff hike on April 1, 2021.
Energy analysts have said the move will add an extra 10% to the electricity price increase in 2020/21 if the order is granted.
Nersa earlier conceded in court papers that National Treasury’s R69bn bailout for Eskom technically should have been accounted as equity to pay off debts and not as part of its allowable revenue, when the regulator determined price increases. This had led to Nersa granting lower tariff hikes.
However, Nersa has since appealed the ruling, challenging the court’s authority to prescribe the manner and timing of the price increases to rectify its error.
Eskom chief financial officer Calib Cassim has now asked the court to allow the utility to recover the first tranche of R23bn that he says in its latest court papers was part of the “unlawful removal of R69billion from revenue allowed to Eskom over the 2019/20 to 2021/22 tariff years”.
In terms of the order, “the deducted amount of R23billion was to be added back to the revenue allowed to Eskom for the 2021/22 tariff year. The Eskom average standard tariff for the 2021/22 tariff year was accordingly to be increased from 116.72 c/kWh to 128.24 c/kWh.
“The effect of granting leave to appeal was to suspend implementation of the order,” he said.
Cassim argued that these paragraphs of the order would be rendered “nugatory” (invalid) because it was unlikely the appeal would be finalised before Eskom’s March 15, 2021, deadline for tariffs to be finalised and applied to municipalities. He urged the court to grant urgent relief, as Eskom would “suffer irreparable harm” if it could not recover the increases.
“Nersa has baulked at taking responsibility for the necessary electricity price increases, to move from a heavily subsidised tariff to a cost-reflective tariff. So Eskom tariffs today are still nowhere near a cost-reflective price,” he said.
He argued that Nersa had contributed to Eskom’s “liquidity crisis” and made “erroneous” tariff decisions that were “irregular” and “inadequate” and had deprived Eskom of a total of R146bn.
He said this was more than a third of Eskom’s “crippling” R441bn debt burden and the decision not to grant its price hikes was only pushing the problem of higher pricing into the future.
“Nersa has been delaying the inevitable, in a misguided attempt to benefit consumers at Eskom’s expense,” Cassim said. “Nersa’s approach is presenting a real threat to the financial survival of Eskom and with it the finances of the South African state as a whole,” he said.
“With state finances stretched by the Covid-19 epidemic, the state is less and less able to bail Eskom out financially if it defaults on its debt repayments and there is a real risk of interlinked government guarantees, which could be as much as double Eskom’s debt, becoming immediately payable.”
He said if the application was not granted, it would cause Eskom to end the year with an income statement loss of R25.3bn, resulting in a negative cash balance of R3.9bn.
“Given Eskom’s central role in the South African economy, this will also threaten the entire fiscus of the country,” he said.
Energy analyst Ted Blom said consumers would be in for an additional 10% tariff hike in the 2021/22 year, followed by an extra 17% in 2022/23, as Eskom would likely want to add interest.
“That will kill the last remnants of the economy.
“Nersa is behaving like a circus, they were irresponsible and all at the cost of the South African public.
“Nersa acted totally irresponsibly by conceding the case in court and then wanting to appeal it,” he said.
Organisation Undoing Tax Abuse’s energy adviser, Chris Yelland, said Nersa had demonstrated “a serious lack of competence and judgement in its misappropriation of the R69billion as revenue instead of equity”.
“While this will have a negative impact on Eskom’s cash flow and sustainability, we also believe that the application of Eskom’s tariff increases, following the court’s ruling in their favour, will be a blow to an already over-burdened South African consumer and the economy as a whole,” Yelland said.
GroundWork researcher David Hallowes said higher prices would force businesses to become more energy efficient but it would make electricity unaffordable for many consumers.
“Some people are going to be knocked off the grid and will be burning coal or paraffin instead.
“Already, people on prepaid electricity run out halfway through the month and then go on to paraffin. Eskom will remain locked in a debt spiral of declining demand and rising tariffs,” Hallowes said.
Nersa head of communication Charles Hlebela said: “Nersa does not respond to people’s opinions or perceptions that are not based on facts.”
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