Fin24: Why Eskom is asking for a 19.9% tariff hike

By November 16, 2017Articles
Fin24 has recently reported on the reason why Eskom is asking for a 10.9% tariff hike.
Johannesburg – Eskom was making a sacrifice on its allowable returns in its latest tariff application to the National Energy Regulator of South Africa (Nersa), which will see a drop of R12bn in returns.

This is according to Eskom’s team of experts who unpacked the details of the power utility’s application for a tariff hike of 19.9% to the regulator for the 2018/19 year.

Nersa has given Eskom the green light to pursue the hike and hearings into the viability of the proposed tariff increase is scheduled for later this year.

Eskom wants its allowable revenue to increase to R219.5bn, up from the allowable revenue of R205.5bn which Nersa maintained for the 2017/18 year. Essentially the 2.2% increase for 2017/18 was below inflation, said Deon Joubert, corporate specialist of finance and economic regulation.

Hasha Tlhotlhalemaje, general manager of regulation said that in essence Eskom was asking for an absolute revenue increase of R14.3bn. “This is a 7% increase from the previous allowable revenue (approved by Nersa),” she said.

Of this 3.6% of the allowable revenue will be generated from standard tariffs, which is comprised of local customers and the remaining 3.4% of revenue would be generated from export and Negotiated Pricing Agreement (NPA) customers, she explained.

If the application succeeds, Eskom expects an income of R206.2bn from tariffs, Fin4 reported previously. Its average tariff is expected to then rise from 89c per kWh to R1.07 per kWh.

In monetary terms this R219.5bn comes from an increase in primary energy sources of R1bn, an increase of R11.2bn in local Independent Power producers (IPPs), an increase of R13.2bn for operating costs and a R2.8bn increase in international purchases. No change is expected in the level of depreciation. The environmental levy is also expected to decrease with R1.8bn

Eskom is also taking into account that returns will drop R12bn from Nersa’s previous decision. if this decision was not made, the price increase would have been “phenomenally” higher, explained Tlhotlhalemaje.

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