Eskom submits tariff application
Eskom submits tariff application
Eskom submits tariff application
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MEDIA STATEMENT<br />
ESKOM SUBMITS TARIFF APPLICATION<br />
Monday, 22 October 2012: <strong>Eskom</strong> has today announced the details of its <strong>application</strong> to<br />
the National Energy Regulator of South Africa (Nersa) for a <strong>tariff</strong> determination to cover<br />
the next five years from April 2013.<br />
“We are planning for a growing and successful economy,” said <strong>Eskom</strong> Chief Executive<br />
Brian Dames. “For that we need to continue to invest in the electricity infrastructure which<br />
can support higher rates of economic growth and development and extend access to<br />
electricity to all South Africans.”<br />
“We seek to ensure that <strong>Eskom</strong> can cover the costs of supplying the electricity needed to<br />
power South Africa and invest in the future,” said Dames. “Our <strong>application</strong> balances South<br />
Africa’s needs for a secure supply of power and for a sustainable electricity industry, with<br />
our recognition of the impact which <strong>tariff</strong> increases have on the economy, particularly on<br />
the poor,” he said.<br />
The <strong>application</strong> proposes a price path which continues to migrate electricity prices towards<br />
a level where they cover the full cost of producing electricity. This includes input costs<br />
such as coal, maintenance and human resources, as well as the cost of servicing the debt<br />
raised to finance <strong>Eskom</strong>’s new build programme. The <strong>application</strong> also provides for the<br />
introduction of new independent power producers (IPPs), particularly in renewable energy.<br />
The current three-year <strong>tariff</strong> determination (Multi-Year Price Determination 2) by Nersa<br />
ends in March 2013. <strong>Eskom</strong> has submitted its <strong>application</strong> for the next determination,<br />
MYPD 3, which will be decided by Nersa following public hearings early next year. “<strong>Eskom</strong><br />
has set out the rationale behind its <strong>application</strong> as comprehensively and transparently as<br />
possible to inform open discussion about electricity pricing,” Dames said.<br />
“Nersa will make its decision following an extensive process of public participation. We<br />
encourage all South Africans to engage with our <strong>application</strong>,” he said.<br />
The <strong>application</strong> is for average increases of 13% over five years for <strong>Eskom</strong>’s own needs,<br />
plus 3% to support the entry of new independent power producers, giving a total of 16% a<br />
year over five years.<br />
This would see the average electricity price increase from 61c/kWh in 2012/2013 to 84c in<br />
real (inflation adjusted) terms by 2017/2018, for <strong>Eskom</strong>’s needs only, or 96c/kWh including<br />
IPPs.<br />
Issued by: <strong>Eskom</strong> Media Desk<br />
Tel: +27 11 800 3304/3309/3343/3378<br />
Cell: +27 82 805 7278<br />
Fax: 086 664 7699<br />
Email: mediadesk@eskom.co.za
The IPPs, which will see the first large scale introduction of renewable energy into the<br />
South African market, include all three phases of the Department of Energy’s (DoE’s)<br />
renewable energy procurement programme (3 725 MW), in line with a determination by<br />
the Minister of Energy, as well as the DoE’s peaking projects (1 020 MW).<br />
Coal is <strong>Eskom</strong>’s single largest cost, and coal costs are seen increasing by 10% a year<br />
over the five years, with <strong>Eskom</strong>’s primary energy costs increasing by 8.6% on average<br />
within the five years. <strong>Eskom</strong> has called for a pact to contain coal cost increases, which<br />
averaged approximately 18% over the MYPD 2 period. Other operating costs increase by<br />
an average of 8% a year within the five years, with manpower costs rising in line with<br />
inflation.<br />
The <strong>tariff</strong> <strong>application</strong> will see <strong>Eskom</strong>’s return on assets improve from 0.9% to 7.8% over<br />
the MYPD3 period, with the return going mainly to support the debt raised to finance<br />
<strong>Eskom</strong>’s capital investment programme. <strong>Eskom</strong> is spending about R337-billion over the<br />
five years on its new build programme and the upgrading and refurbishing of its existing<br />
assets. The build programme has significant benefits for the economy, providing the<br />
necessary infrastructure to grow the economy, creating jobs and skills and stimulating the<br />
development of local supplier industries. There are currently more than 35 000 people on<br />
site at <strong>Eskom</strong>’s big build projects and more than R75-billion of contracts have been placed<br />
with South African suppliers.<br />
<strong>Eskom</strong>’s <strong>application</strong> covers only its committed new build programme up to the end of the<br />
Kusile power station project, which is expected to be completed by 2018/19.<br />
“An investment grade rating is vital to ensure that we can access funding, at cost-effective<br />
rates, for our build programme. The <strong>application</strong> will enable <strong>Eskom</strong> to move to a standalone<br />
investment grade rating by the end of the MYPD 3 period,” said <strong>Eskom</strong> Finance<br />
Director Paul O’Flaherty.<br />
As part of the <strong>application</strong>, <strong>Eskom</strong> modelled scenarios showing the pricing implications of<br />
new build beyond Kusile, in terms of the Government’s Integrated Resource Plan 2010,<br />
which indicated average increases of 20% over the MYPD 3 period. However, the<br />
additional capacity was not included in the <strong>tariff</strong> requested from Nersa.<br />
<strong>Eskom</strong> has submitted proposals to Nersa for a <strong>tariff</strong> structure which would ensure that<br />
poor households who use very little electricity experience only single digit price increases<br />
over the five years.<br />
<strong>Eskom</strong> also announced today that it would soon be submitting an <strong>application</strong> to Nersa to<br />
look into the special pricing agreements which <strong>Eskom</strong> has with BHP Billiton relating to the<br />
aluminium smelters in KwaZulu-Natal. The special pricing agreements link the price the<br />
Issued by: <strong>Eskom</strong> Media Desk<br />
Tel: +27 11 800 3304/3309/3343/3378<br />
Cell: +27 82 805 7278<br />
Fax: 086 664 7699<br />
Email: mediadesk@eskom.co.za
smelters pay for electricity to the dollar price of aluminium and were entered into in the<br />
1990s when <strong>Eskom</strong> had surplus generating capacity, which is no longer the case.<br />
ENDS<br />
Issued by: <strong>Eskom</strong> Media Desk<br />
Tel: +27 11 800 3304/3309/3343/3378<br />
Cell: +27 82 805 7278<br />
Fax: 086 664 7699<br />
Email: mediadesk@eskom.co.za