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Eskom's tariff hike shocker

| Economic factors

Eskom is looking for a 9.58% price adjustment for electricity in addition to the already announced 12.69% imposed in the 2015-16 financial year, reports the City of Cape Town.

This emerges from a City of Cape Town mayoral committee meeting on Thursday when deputy mayor and finance mayoral committee member Ian Neilson reported that the city had on Wednesday received correspondence from Eskom “with respect of their reopening of the MYPD 3 (multi-year price) determination in an application to the National Energy Regulator of South Africa”.

If Eskom’s application was approved, the city noted, this would result in “a staggering 22.27% increase in bulk electricity tariffs in just one financial year, which the city will have no option but to pass on to our own customers”.

In a statement on Thursday afternoon, the city’s marketing department reported that the city was “very concerned” that this application had come so late in the process for the drafting of budgets by municipalities.

“Our draft budget to be tabled next week, including the city’s electricity tariffs, is based on the approved 12.69% increase,” it reported.

Increase unaffordable

“The size of the proposed increase may be unaffordable to many of our electricity customers, particularly the residential users,” the city said.

“We apologise to our customers in advance that we will have to proceed with a budget announcement on electricity tariffs that will likely increase even more than tabled, but this is not of our own making.”

The Nersa process would involve public participation and any increase is likely to take months to implement.

Amid increasing signs that Eskom is battling to pay its bills, Business Day reported on Thursday that Eskom had spent R8bn more than budgeted to buy diesel this financial year.

It reported that just R2bn was budgeted for diesel – to pay for the costs of diesel fuelling the peaker power plants which kick in when the supply to the grid is constrained by the coal-fired plants’ shortfall.

Eskom uses the diesel-driven peaker plants – the open-cycle gas turbines – to provide back-up electricity.

Public Enterprises Minister Lynne Brown already acknowledged in a parliamentary reply that the bill for diesel was rocketing. The total cost of diesel for the open cycle gas turbines had risen to R1.17bn in January from R905m in December, she told SJ Masango, a DA MP, in reply to his parliamentary question.

While Finance Minister Nhlanhla Nene said in his budget on February 25 that R23bn would be paid to the embattled Eskom as a broad package “of support”, there was no mention made that Eskom was seeking billions of rand to pay for the emergency diesel supplies.

Tariff hike

Meanwhile Standard & Poor's (S&P) has downgraded Eskom's long-term credit rating to junk following the suspension of four of its senior officials.

The suspension has led the ratings agency to have less confidence in the company's corporate governance arrangements and its stand-alone credit profile, primary credit analyst Karim Nassif said.

"The negative outlook reflects our opinion that material execution risk remains associated with the government's support plan, and that Eskom's operating performance has not yet stabilised due to rising costs and the very tight generation capacity margin in South Africa."

Eskom's previous S&P rating was BBB-.

Last week, Eskom chief executive Tshediso Matona, finance director Tsholofelo Molefe, group capital executive Dan Morokane, and commercial and technology executive Matshela Koko were asked to step aside as the power utility embarked on a fact-finding inquiry.

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