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Eskom's request for massive tariff hikes sparks audit



Samantha Enslin-Payne, Business Report, 20 March, 2008

Durban - Eskom's request for massive tariff hikes has ignited calls for an independent audit of the utility's ability to manage its costs and operations.

Raymond Parsons, the business convener at Nedlac, the government, labour and business negotiating chamber, said yesterday that Eskom's credibility could be restored only if its costing and finances were independently audited.

"There needs to be an urgent and creative relook at how Eskom is financed, including the possibility of a World Bank loan," said the University of Pretoria economics professor.

Manie van Dyk, the Democratic Alliance's spokesperson on public enterprises, said an inquiry should probe Eskom's management of the power crisis, its production capacity and ability to deliver future supply.

Concerns about the effect on the poor have been raised. Cosatu spokesperson Patrick Craven said the labour federation wanted a freeze on tariff increases until after a full public discussion on the alternatives.

"This will have a devastating effect on … the poor," he said. "Some people will have to give up using electricity."

Eskom applied for the reopening of the multi-year price determination last year, saying it needed an 18.7 percent hike. It was granted a tariff increase of 14.2 percent from April 1, more than double the 6.2 percent previously approved.

Eskom this week asked for a hike of 53 percent in real terms and 60 percent in nominal terms, to cope with rising fuel costs and energy efficiency expenses. The public enterprises department said this would replace the increase already granted.

In support of Eskom, the department said the hike was needed to pay for an accelerated plan to reduce consumption and cover sharp increases in coal and diesel prices, "for which the utility is now paying between 25 percent and 30 percent more than budgeted".

The increase would not be used to build new power stations and measures would be introduced to help the poor.

To soften the effect on small business, a time-of-use tariff would be implemented where possible, to allow them to benefit from cheaper standard and off-peak periods.

Anton Eberhard of the University of Cape Town's graduate school of business said the management of a private firm would be fired if it admitted to unexpected increases in input costs in the order of magnitude that Eskom was claiming.

Eberhard said reopening the price determination process would make a mockery of a system implemented to incentivise Eskom to manage its costs.

Under the multi-year rules, a second reopening is not allowed, according to Thembani Bukula, who oversees electricity regulation at the energy regulator, but Eskom has argued that this could be done in terms of the Electricity Regulation Act.

From: http://www.busrep.co.za/index.php?fSectionId=552&fArticleId=4312288

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