Part 1 Revenue Application: Multi-Year Price Determination ... - Eskom

Overview of Multi-Year Price Determination
2013/14–2017/18 (MYPD 3)
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The delivery of universal access would need to be discussed and decided upon by
government.
3.6 Long-term financial viability and funding
An important principle on which the MYPD application rests is the need for Eskom and the
electricity industry to be financially viable and sustainable. This section details what is
required for Eskom to be viable and attract the requisite credit ratings, as well as what is
needed to attract IPPs to the electricity industry so that they can play a role in building the
generation capacity identified in IRP 2010.
To achieve sustainability and cost efficiency, Eskom needs to strike a balance between three
sources of funding: equity, debt and revenue. Revenue is of particular importance for the
MYPD 3 application since this is the one source that can be recovered through the tariff.
Long-term financial sustainability requires that Eskom‟s revenue must pay the interest costs
of debt and equity while recovering capital through depreciation. Although three funding
sources are mentioned, adequate revenue is a key requirement for raising equity and debt.
The availability of financing depends largely on the regulatory framework for obtaining future
revenue. Financing options may serve to smooth the impact of lumpy capital requirements,
but ultimately it is the regulatory approach that allows for interest payments, recovery of
capital expenditure and the long-term sustainability of the funding model.
Capital expenditure can be recovered through depreciation of an asset over its useful life.
The implication is that Eskom funds its capital expenditure by making capital investment
through loans and equity (where available) and recovering the investment over time through
revenue. A sustainable price path will allow for recovery of the principal and longer-term
returns on capital investment. These returns need to reach a level that will satisfy the
requirements of both debt and equity providers.