Eskom's fee plea shows a total lack of discipline
October 16, 2009
By Justin Brown
It is outrageous that Eskom wants to load the burden of funding its R413 billion expansion to March 2013 on ordinary and industrial consumers, who are still shell-shocked by the effects of South Africa's first recession in 17 years and who clearly remember last year's energy crisis caused by the utility, which cost the economy R50bn.
The power producer has four options to fund its growth programme: use its own cash, state injections, borrowings, and tariff increases. Eskom had R18.4bn in cash available at the end of March after sustaining a record loss of R9.7bn.
The government has agreed to lend it R60bn as well as guarantee R176bn of existing and future debt.
Over the three years to April 2013, it is planning to borrow R120 billion.
Then the utility wants energy prices to triple over the next three years. An ordinary middle class household currently paying R1 000 a month for electricity will have to fork out an extra R24 000 a year by April 2013 if these hikes are approved. That is a substantial additional cost.
Such an increase in power prices may cause great damage to the country, including deepening the recession, increasing inflation, pushing up interest rates and destroying jobs. The price increases could well crimp demand and so reduce Eskom's ability to earn the revenue it needs.
The funding plan should aim to generate cheap, reliable power at no pain to the economy, the people or the environment.
Generally new projects are funded either via debt or shareholder money.
Financial institutions get back the money they loan plus interest and shareholders stand the chance of being paid dividends. They own the entity and appoint the group's board of directors.
However, ordinary and industrial consumers are being asked, through power tariffs, to contribute hundreds of billions of rand without any control over Eskom and no direct return other than a promise of more reliable power supply. The parastatal is not accountable to consumers.
The lack of accountability to the proposed providers of funding can turn the expansion into a potentially wasteful exercise.
The utility is budgeting for six consecutive years, up to March 2015, of year-on-year increases in capital, primary and operating costs adding up to R1.215bn.
Such a budget is unrealistic and does not take into account economic cycles.
Eskom has no discipline - it is always asking for more money. Over the 15 months to June last year it won approval for three power price increases to try and cover rocketing fuel costs.
With so much money floating around, there is a great deal of risk and temptation for financial malpractice.
For example, in February this year, the Public Protector found that former Eskom chairman Valli Moosa acted improperly during the awarding of a multibillion-rand contract related to the construction of the Medupi coal-fired power station in 2007 as a result of a conflict of interest.
One can only wonder what else is going on that has not been detected.
Electricity tariffs paid by ordinary and industrial consumers should be used to fund operating costs only. No company asks the people to whom it supplies goods and services to fund its expansion - that is unheard of.
Eskom should use its own cash, state injections and borrowings for expansions.
If the utility cannot get enough funding from these three sources then it needs to cut its cloth according to its means and slow down its expansion to a pace it can afford.
If there is not sufficient money to expand - there is not sufficient money. Period.
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