Mixed views on Eskom model

THE Association of Electric Cable Manufacturers South Africa (AECMSA) Electric has admitted,Picture: Gallo Images

ESKOM’S business model as well as the entire electricity supply sector require a fundamental restructuring to make it fit for purpose in order to face supply challenges and disruptive technologies, an analyst said.

The restructuring of Eskom came under the spotlight in a debate which comprised a panel of energy experts and the CEO of the National Energy Regulator of SA (Nersa), Chris Forlee, deputy chairperson of the Development Bank of Southern Africa Frans Baleni, a non-executive director of Eskom, Nelisiwe Magubane and economist Dr Grové Steyn.

Baleni said a full-blown restructuring of Eskom would be expensive. “It is quicker to stabilise the business than to restructure. It will not work if we only restructure Eskom, an entire industry will have to be looked at – and we don’t have the time or the money to address this.”

Eskom has been plagued by bad governance, which weighed on investor confidence, poor financial performance and sloppy revenue collection. Steyn insisted that Eskom’s institutional models had outlived its usefulness. “It has now become critical for SA to embrace the technological disruption and address the environmental imperatives in the power sector.”

To achieve this, he said, institutional reforms were required including the restructuring of Eskom and opening of the market. He emphasised the need for change at Eskom because of its monopoly position and abuse of dominance.

“It encourages large inefficiencies and constrains access to the transmission grid to competitors and suppresses entrepreneurship,” he said. Steyn said that the issue of monopoly was that the opportunity cost related to lost economic growth, development and jobs were enormous but not visible. The second need was because Eskom’s environmental impact in the use of coal.

“In the past, we have accepted these human and environmental impacts because we had no choice but now we do,” he said. “Human health and environmental impacts should be placed back on the agenda of the mainstream conversation on the future of the power system in the country,” he said.

Eskom last week presented its cost recovery application to Gauteng stakeholders to recover a variance in revenue between what was allowed under the third multi-year price determination (MYPD 3) process and what was actually spent in the three years (2014 to 2017), which amounted to R66bn.

Senior executives presented Eskom’s capacity situation and the context for decisions taken during this period, which showed reasons why costs were incurred as the power utility was implementing its mandate of supplying electricity.

Ted Blom, an energy expert and partner at Mining and Energy Advisors called for a zero percentage tariff increase in reply to Eskom’s R67bn or 33% tariff increase application. Blom had been vocal about his concerns on the goings on at Eskom.

He highlighted the impact of poor decision making at the power utility which dated back to 2001 – a time when Eskom was declared a profit-making entity by the government.

“The correct price of electricity in today’s money is no more than 40 cents/ KWh compared to the R1.09 official tariff and the effective R4.54 paid by many poor people on prepaid. Between 2008 and 2017, inefficiencies and corruption at Eskom have cost SA more than R1 trillion and a loss of more than 500000 jobs,” Blom said.

-THELMA NGOMA|thelman@afrotone.co.za