Gauteng Business News

Send  Share  RSS  Twitter  09 Dec 2009

ENERGY: Eskom Hikes NOT Necessary


Recent Gauteng Business News

At a conference hosted by the Solidarity Research Institute, it was proven that Eskom does not need large tariff increases to finance its new power stations. Eskom is currently following the easy route instead of following the more difficult but better route.

Instead of increasing tariffs by triple figures over the next three years in order to pay for the new power stations, the company should rather get financing through loans, government bonds and international investments.

“We believe that Eskom views tariff increases as an easy and simple way to fund its infrastructure expansions. The reality is, however, that a large tariff hike next year will fuel inflation, which would be to the detriment of growth in the South African economy, which is already under severe strain. Disproportionately higher electricity prices will also decrease our economy’s international competitiveness, which is already on a downward trend according to most other indicators. This will, in turn, lead to further liquidations of companies and retrenchments of employees, feeding into the vicious cycle of lower economic growth and poverty in South Africa. It is, therefore, in the national interest for Eskom not to fund its infrastructure expansion by means of disproportionate tariff increases,” Buys said.

According to Johan Kruger, head of the Solidarity Research Institute, the trade union will soon submit all the proposals made at today’s conference to Eskom and the National Energy Regulator of South Africa (NERSA).

Eskom must draw a distinction between the financing of operational costs and financing of generation and transmission infrastructure expansion. Only when Eskom has a plan for financing its infrastructure expansion will the company be able to formulate an appropriate funding model required to pay for it.

Consumers must only pay for a product or service that is provided and cannot also be held solely responsible for the large-scale development that has now become essential. If Eskom developed a financing model and determined tariff increases according to the rise in operational costs, an acceptable tariff increase would be found.

In the last financial year there were huge increases in costs like transport, acquisition of coal, and other operational costs. The company budgeted for human resources cost increases of 40% over two years while workers only received a 10% increase and there was actually a decrease in the number of people employed by Eskom.

Eskom needs to get its operational costs under control. As long as there remains such a large gap between budgeted and actual figures, disproportionate tariff hikes will not solve Eskom’s problems.

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