Nersa resists Eskom’s plea in court for massive price hike

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Nersa resists Eskom’s plea in court for massive price hike

Eskom pylons.

Judgment in the matter was reserved yesterday but is expected to be handed down soon in light of the urgency of the matter.

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A massive hike in the price of electricity may be the lesser of two evils, according to Eskom, with the alternative being its complete financial collapse and in turn, the country’s.

The state-owned power utility has told the High Court in Pretoria the country could default on almost R1 trillion of debt – and face financial collapse as a result – unless the utility was allowed to start charging much more for electricity.

Eskom asked the court to step in after the National Energy Regulator of South Africa (Nersa) refused its proposed tariff increases for the 2019-2021, 2020-2021 and 2021-2022 financial years.

Eskom had asked Nersa for “total allowable revenue” of R219 billion for the 2019-2020 financial year; R252 billion for 2020-21 and R291 billion for 2021-22. These amounts would have translated into a 15% tariff increase for each of these years.

Nersa, however, only approved amounts of R206 billion, R222 billion and R233 billion respectively. These amounts translate into increases of between 5.22% and 9.41%.

The matter came before Judge Jody Kollapen yesterday.

Eskom’s case, in part, is that Nersa deducted a contentious R69 billion bailout that government last year agreed to provide it from the total amount it had indicated it would need for the three years in question.

In “misappropriating” these funds, Eskom said in its court papers, Nersa “ignored the goal of government policy … to progress towards a position in which Eskom is able to ensure a reasonable return”.

It said a shortfall in revenue would likely result in “a national fiscal crisis”.

Yesterday, advocate Matthew Chaskalson, acting on behalf of Eskom, argued his client had to borrow an additional R270 billion to continue financing its operations into 2024. This was over and above the R441 billion it currently owed.

“Much of this debt is interlinked so if Eskom defaults on one facility – if it fails to meet a repayment that it owes to one debtor – that triggers default on most of the other facilities,” he said. “What that means is that all of the capital and the interest payable under those facilities becomes immediately repayable.”

A significant portion of Eskom’s current debt of about R318 billion is guaranteed by the state.

“So, if Eskom defaults … R318 billion will immediately become repayable by the state. And much of South Africa’s state debt is itself interlinked. So, if the state cannot meet a demand by a guaranteed Eskom creditor for payment, that will trigger default on R980 billion in state debt.”

Chaskalson said the country could “be going to the [International Monetary Fund] with a begging bowl very soon”.

But Nersa stands by its decision.

The regulator said were it to have accommodated Eskom’s proposed tariffs, it would result in a total tariff increase of 53% over a three-year period, which was unaffordable.

In its court papers, Nersa said: “The discretion exercised by Nersa is an informed one and not exercised in a vacuum, but in an economy where the increasing electricity prices are leading to the decline in sales and negative consequences for the economy.

“As a consequence, Eskom is compelled to recover the increase in cost from a shrinking customer base. Naturally, this results in an application for higher tariff increases. As a result of higher tariff increases, sales further decline and the cycle starts again.”

Judgment in the matter was reserved yesterday but is expected to be handed down soon in light of the urgency of the matter and the fact that Eskom needs to submit its tariffs to local government by the end of March.

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