Submission by the Chamber on Eskom's application for a 60% nominal price increase

In its submission to the National Energy Regulator of South Africa (NERSA) made at today’s public hearings on Eskom’s application for a 60% nominal electricity price increase, the Chamber called for a reconsideration of the quantum and the speed of the increase.

While acknowledging that the overall business sector has accepted that electricity prices in South Africa are too low, “Trying to force once-off large adjustments on the economy, such as imposing a 10% curtailment in electricity supply or the imposition of a 53% real price increase in 2008 and a further 43% in 2009, will have a significant detrimental dislocation effect on the economy, and will not allow sufficient time for the process of adjustment to take place”, said Dick Kruger of the Chamber.

In his submission on behalf of the Chamber, Kruger noted that while it was clear that South Africa is in the midst of an unprecedented electricity emergency, “A once-off large increase in price, or a sudden reduction in electricity supply has negative implications for an electricity intensive sector like mining. In addition, the two cents per kilowatt hour levy on electricity generated by fossil fuels proposed by Treasury in the February 2008 budget equates to a 10% increase in price, putting a further burden on mining. It is the Chamber’s contention that this proposal be shelved owing to the electricity emergency and instead should be built into the revised 2008 Eskom price proposal”.

Kruger stressed that a two-pronged approach that involved remedial steps to restore electricity supply as well as the promotion of greater efficiency in the use of electricity needed urgent consideration. “However,” continued Kruger, “becoming more energy efficient is a process, which should be given time to work. This would mean that government needs to go for both a combination of a reasonable real increase in price and the provision of real incentives for energy efficiency”.

Taking note that Eskom’s application, which focused on “the rapid escalation in primary energy costs, the need to fund accelerated demand side management and the need to make a profit to sustain its investment grade rating, the Chamber submitted that the primary energy costs increase requested by Eskom to fund extra coal and diesel for open cycle gas turbines and for transporting coal bought on the spot market appears reasonable.

"Issues such as developing inland coal rail terminals and ensuring better reliability of base-load stations to reduce the usage of diesel should be considered,” said Kruger. He further suggested that government should consider joining the lobby to encourage OPEC to increase crude oil production. In terms of demand side management, the Chamber believes that this should be fully funded by government and excluded from the current Eskom price increase proposal. Kruger said additional sources of funding, such as the clean development mechanism, should be pursued. On the issue of Eskom having to make a large profit to maintain its investment grade rating, the Chamber submitted that this should be removed from the pricing increase proposal because government, as the 100% owner of Eskom, “needs to help recapitalise the business beyond the R60-billion loan already provided. Given government’s excellent fiscal track record and very low international debt levels, government should recapitalise Eskom to preserve the parastatals credit rating”.

For enquiries please contact:
Jabu Maphalala
Deputy Communications Adviser
Chamber of Mines of South Africa
Tel No. +27 11 498 7212
Fax No. + 27 11 838 4251
Cell No. + 27 72 883 4642
Email: jmaphalala@bullion.org.za