Eskom submits tariff application

MEDIA STATEMENT
ESKOM SUBMITS TARIFF APPLICATION
Monday, 22 October 2012: Eskom has today announced the details of its application to
the National Energy Regulator of South Africa (Nersa) for a tariff determination to cover
the next five years from April 2013.
“We are planning for a growing and successful economy,” said Eskom Chief Executive
Brian Dames. “For that we need to continue to invest in the electricity infrastructure which
can support higher rates of economic growth and development and extend access to
electricity to all South Africans.”
“We seek to ensure that Eskom can cover the costs of supplying the electricity needed to
power South Africa and invest in the future,” said Dames. “Our application balances South
Africa’s needs for a secure supply of power and for a sustainable electricity industry, with
our recognition of the impact which tariff increases have on the economy, particularly on
the poor,” he said.
The application proposes a price path which continues to migrate electricity prices towards
a level where they cover the full cost of producing electricity. This includes input costs
such as coal, maintenance and human resources, as well as the cost of servicing the debt
raised to finance Eskom’s new build programme. The application also provides for the
introduction of new independent power producers (IPPs), particularly in renewable energy.
The current three-year tariff determination (Multi-Year Price Determination 2) by Nersa
ends in March 2013. Eskom has submitted its application for the next determination,
MYPD 3, which will be decided by Nersa following public hearings early next year. “Eskom
has set out the rationale behind its application as comprehensively and transparently as
possible to inform open discussion about electricity pricing,” Dames said.
“Nersa will make its decision following an extensive process of public participation. We
encourage all South Africans to engage with our application,” he said.
The application is for average increases of 13% over five years for Eskom’s own needs,
plus 3% to support the entry of new independent power producers, giving a total of 16% a
year over five years.
This would see the average electricity price increase from 61c/kWh in 2012/2013 to 84c in
real (inflation adjusted) terms by 2017/2018, for Eskom’s needs only, or 96c/kWh including
IPPs.
Issued by: Eskom Media Desk
Tel: +27 11 800 3304/3309/3343/3378
Cell: +27 82 805 7278
Fax: 086 664 7699
Email: mediadesk@eskom.co.za

The IPPs, which will see the first large scale introduction of renewable energy into the
South African market, include all three phases of the Department of Energy’s (DoE’s)
renewable energy procurement programme (3 725 MW), in line with a determination by
the Minister of Energy, as well as the DoE’s peaking projects (1 020 MW).
Coal is Eskom’s single largest cost, and coal costs are seen increasing by 10% a year
over the five years, with Eskom’s primary energy costs increasing by 8.6% on average
within the five years. Eskom has called for a pact to contain coal cost increases, which
averaged approximately 18% over the MYPD 2 period. Other operating costs increase by
an average of 8% a year within the five years, with manpower costs rising in line with
inflation.
The tariff application will see Eskom’s return on assets improve from 0.9% to 7.8% over
the MYPD3 period, with the return going mainly to support the debt raised to finance
Eskom’s capital investment programme. Eskom is spending about R337-billion over the
five years on its new build programme and the upgrading and refurbishing of its existing
assets. The build programme has significant benefits for the economy, providing the
necessary infrastructure to grow the economy, creating jobs and skills and stimulating the
development of local supplier industries. There are currently more than 35 000 people on
site at Eskom’s big build projects and more than R75-billion of contracts have been placed
with South African suppliers.
Eskom’s application covers only its committed new build programme up to the end of the
Kusile power station project, which is expected to be completed by 2018/19.
“An investment grade rating is vital to ensure that we can access funding, at cost-effective
rates, for our build programme. The application will enable Eskom to move to a standalone
investment grade rating by the end of the MYPD 3 period,” said Eskom Finance
Director Paul O’Flaherty.
As part of the application, Eskom modelled scenarios showing the pricing implications of
new build beyond Kusile, in terms of the Government’s Integrated Resource Plan 2010,
which indicated average increases of 20% over the MYPD 3 period. However, the
additional capacity was not included in the tariff requested from Nersa.
Eskom has submitted proposals to Nersa for a tariff structure which would ensure that
poor households who use very little electricity experience only single digit price increases
over the five years.
Eskom also announced today that it would soon be submitting an application to Nersa to
look into the special pricing agreements which Eskom has with BHP Billiton relating to the
aluminium smelters in KwaZulu-Natal. The special pricing agreements link the price the
Issued by: Eskom Media Desk
Tel: +27 11 800 3304/3309/3343/3378
Cell: +27 82 805 7278
Fax: 086 664 7699
Email: mediadesk@eskom.co.za

smelters pay for electricity to the dollar price of aluminium and were entered into in the
1990s when Eskom had surplus generating capacity, which is no longer the case.
ENDS
Issued by: Eskom Media Desk
Tel: +27 11 800 3304/3309/3343/3378
Cell: +27 82 805 7278
Fax: 086 664 7699
Email: mediadesk@eskom.co.za