Eskom wants to recover the tens of billions of Rands it lost to overspending on coal and lower than expected sales between 2014 and 2017 – which could mean a massive tariff hike for businesses and consumers before the end of 2018.

According to Mining Review, submissions made to Nersa show that Eskom wants to recover as much as R66 billion, which was lost in the ‘Gupta years’ – 2014 to 2017, the years highlighted in the Public Protector’s State of Capture report.

The shortfall is due to Eskom’s over-estimation of electricity sales and its overspend on coal, gas and imports during that period.

The way the amount will be recovered is through the Regulatory Clearing Account (RCA), which works by allowing Eskom to apply to recover a shortfall in revenue in a given year, based on how much it missed its estimated collections or targets.

The amount that is approved for recovery is then factored into the tariff price of the next year.

Ted Blom, partner at Mining & Energy Advisors, said that the RCA process is incredibly flawed, and means that Eskom will never run at a loss as any shortfall is recovered through a flawed annual RCA application.

“In other words, Eskom recovers any shortfall in projections by increasing consumer’s tariffs the following year,” he said. “Once these RCA increases are added to electricity tariffs and the funds recovered, prices are not readjusted back to normal.”

The RCA increase is over and above annual tariff increases, which for the next financial year, Nersa granted a 6.84% hike (before municipal increases are factored in).

If Nersa approves Eskom’s RCA application for 2014/15, 2015/16 and 2016/17 – amounting to some R66 billion – it will result in an electricity tariff hike of some 30%, Blom said.

However, energy expert Chris Yelland said that Eskom is unlikely to get the amount requested, and would be lucky to get half that.