New Eskom tariffs better, but...

2 December 2009

Business groups yesterday welcomed Eskom's softer tariff hike request, but warned that the revised proposal would nevertheless undermine growth in a post-recessionary environment and push inflation to unacceptable levels.

Business Unity SA (Busa) called for an urgent review of Eskom's funding model, combined with bold measures to unlock private capital, particularly in the form of independent power producers (IPPs).

"We view the revised proposal as still being on the upper side. It could still have unintended outcomes on the economy," said Busa chief executive Jerry Vilakazi.

Eskom confirmed yesterday that it was seeking tariff increases of 35 percent for each of the next three years - a full 10 percentage points below a proposal submitted to the energy regulator two months ago. The utility's initial request met with resistance from labour and business, who argued that such steep increases would be inflationary, lower economic growth prospects and result in job cuts.

Acting chairman Mpho Makwana said Eskom's funding needs would be reduced by delaying the Kusile coal-fired power station and the Sere wind facility by a year, postponing a nuclear rollout by two years as well as introducing IPPs and a private equity partner for Kusile. Savings would also come from ramping up demand management, increasing borrowings, injecting new equity and seeking operational efficiencies.

Still, there would be a funding shortfall, said Makwana, who is filling the leadership vacuum caused by the resignations of former chairman Bobby Godsell and chief executive Jacob Maroga last month.

John Purchase, the chief executive of the Agricultural Business Chamber, said the revised price hike was "very high - probably too high. The problem with the whole approach is we're not looking at structural problems within electricity supply and distribution. We're not creating sufficient opportunities for IPPs that could bring on new capacity a lot more quickly."

Stef Coetzee, the chief executive of the Afrikaans business grouping AHI, said a more reasonable increase was probably in the order of 25 percent a year over the next three years.

Vilakazi said Busa members were debating options for a new Eskom funding model, having recognised that securing South Africa's energy supply could not come solely from tariffs.

The emerging view was that "we need to be very bold about this issue and recognise that state funding won't be sufficient to meet needs. We need to look at how we unlock capital in the private sector."

Vilakazi steered clear of referring to "privatisation" for fear of invoking ideological debates. Various partners in the ANC alliance have in recent months called for debate on the nationalisation of mines.

Busa affiliate Business Leadership SA (BLSA), representing 80 of the top local businesses, including multinationals and state-owned enterprises, recently appointed businessman Jayendra Naidoo to lead debate on its behalf about energy options for South Africa.

BLSA chief executive Michael Spicer said yesterday that the immediate aim was to present a cohesive business response focusing on alternative funding models to a national stakeholder council set up after last year's electricity crisis. The council was due to hold a meeting next week.

"You can't talk about tariffs in isolation," said Spicer. "It begs questions of structure, governance, funding models and choice of energy sources."

Original Article Link:

http://www.busrep.co.za/index.php?fArticleId=5270243