Lights, eskom, action…

Out of the frying pan and head-first into the fire… welcome to the new year fellow South Africans. As we barely managed to crawl out of the global tragedy that was the economic recession, South Africans find themselves in hot water once again – this time facing yet another unneeded energy crisis.  Lying at the mercy of such a magnanimous parastatal such as Eskom, South African tax payers are once again subject to the drama presented by our economic spotlight. Bearing this in mind, we may have little to look forward to over the next several years – if only financially.

If my insinuations yield no spark to your memory, allow me to shed some light on the matter. Eskom, supplier of energy to South Africa and the greater Sub–Saharan Africa, have put forward an application, through the guardianship of former Eskom head and recent media tycoon – Jacob Maroga, to the National Energy Regulator of South Africa (NERSA) to increase their tariffs by a whopping 35% over a three year period. South Africa’s central bank has singled this out as the biggest risk for the inflation outlook. Ideally, Eskom needs a somewhat 147% increase in order to maintain their distribution of electricity.

According to Eskom, a low quality coal predominantly mined in the North West and Mpumalanga provinces. Eskom have recently developed several new plants to meet the extensive demands for electricity. The requested tariff hike is expected not only to affect the average consumer but also greater industries such as the mining and energy industry. According to Brian Dames – Eskom’s head of power generations, “There is an urgent need for investment in the coal mining industry and at much higher levels than in the past to meet the coal demand from various users.”

Be that as it may, one may be left to question as to what exactly this means for the devoted tax payer. Being the largest and only energy supplier to South Africa, Eskom could well get away with this. Despite extensive public protests and endless petitions, at the end of the day, we will be forced to pay up. Eskom faces little to no competition. Being a state – owned endorsement there’s almost no fear of competition from what would possibly be a private based energy company – as the required financial support of that enormity would quite frankly be ridiculous. Though, food for thought may lie in the necessity to question Eskom’s long–term plan. If the tariffs hike, whatever the percentage may be,  is granted, then what? Would tariffs be dropped after the requested three year window?

Research organized by Genesis Analytics on behalf of the Chemical and Allied Industries Association highlights that in its application Eskom initially determined its funding req uirement in order to avow its business and to conclude its building programme and then set about justifying the escalation in terms of tariffs.

This is synonymous to Eskom “determining how much money it needs and then finding ways to justify it”, argues Genesis Analytics partner James Hodge. The Genesis research suggests that a 25% increase is a much fairer figure. It holds that there is room for further reductions if certain cost items are scrutinised more closely.

Furthermore, it finds that the planned capacity outlined in the hastily gazetted Integrated Resource Plan may be immoderate once South Africa passes beyond the hazardous, most power-constrained phase, notably the years leading up until 2012.

A number of leading political institutions, including Cosatu, the South African Communist party and the Treatment Action Campaign, have openly declared their lack of faith in NERSA. “We … believe that NERSA has long ago taken a decision on this matter to grant Eskom its 35% increase and these public hearings are meant to just comply with the law,” they stated in a joint statement issued earlier this month.

In most instances like these, it becomes hard to define fact from fiction; Eskom may be doing no more than pulling a recurrent industry stunt to max out consumers’ pockets for Eskom’s personal undertakings. It may be argued that Eskom should have nationalised their enterprise way back in 2008, but it’s of no help to dwell on opportunities lost in the past.

By being engulfed with a consistent flow of electricity, the idea of returning to a life without it is pretty much non–existent to any sane mind. Despite the endless hog of negativity surrounding the issue, we should understand that protesting to completely veto Eskom’s application would do more harm than good. What would be imperative to the situation would be to realign our protests to surge NERSA, Eskom and all other corporate parties involved, to seek a more resilient solution, which could be financially viable to every market without bulldozing the whole economy. All the same industry and market leaders should be looking at a more effective long term plan in order to avoid further shock hemorrhages on the South African stage.