NERSA allowed R85bn a year in Eskom runaway costs – OUTA

Non-profit civil action organisation, OUTA, says that the conduct of the National Energy Regulator for South Africa (NERSA) over the past decade, more specifically its inability to hold Eskom to account over runaway costs on both capital projects and operational expenditure, has lumped South Africans with an unnecessary burden of R85bn per annum for the past few years.

OUTA’s assessment of NERSA’s detailed reasons for decision on curbing Eskom’s 2018 tariff hike to 5.23%, following Eskom’s application for 19.9%, shows that NERSA is only now beginning to realise the role it needs to play in bringing Eskom’s electricity tariffs in line with reasonable generation costs.

“We have studied Eskom’s performance indicators over the past decade and believe that NERSA has been remiss in discharging its mandate to challenge Eskom’s runaway costs, which they keep factoring into their tariff framework,” says Ronald Chauke, OUTA’s Energy Portfolio Manager.

While the NERSA reasons for decision document is critical of Eskom’s inefficiencies and inability to forecast sales properly, OUTA believes that the regulator is now having to step in and curb Eskom’s costs at a late stage, which, if conducted according to OUTA’s calculations, will be a shock to the system and too big to address in the short term.

“NERSA allowed the utility too high an increase, with a knock-on effect on the economy that NERSA notes is likely to cost about 4255 jobs and a combined loss of household income of about R1.7 billion.

“OUTA believes that Eskom’s high costs of operation over the past decade are due largely to its capture and political meddling by people connected to the Guptas and the previous state president. However, more worrying is NERSA’s lack of action as the regulator in challenging the gross developments of rising primary energy costs, runaway capital expenditure projects, staff headcount and other operational inefficiencies.”

According to OUTA’s assessment of Eskom’s financial statements over the past decade, the Medupi, Kusile and Ingula projects have incurred a combined excessive cost overrun of no less than R280 billion, and two of these major projects remain far from completion. This factor alone has added an estimated R28 billion in unnecessary interest costs to Eskom’s operation.

In addition, the high asset valuations, partially due to the “never ending” power plant projects and partially due to their dubious revaluation of existing assets, has enabled to Eskom to increase its “allowable revenue” based on the inflated Regulated Asset Base (RAB) by a further by R8 billion a year, used in its price application at 2,96% of asset value.

OUTA says runaway primary energy costs have not been scrutinised sufficiently by NERSA, allowing this element to escalate from R14 billion a year in 2007 to R82 billion in 2017, translating into an estimated R47 billion a year overspend – after allowing for CPI-related increases.

OUTA believes the primary energy overspend is linked to rampant corruption and favourable coal contracts to a selected few suppliers, which NERSA has allowed to go unchallenged.

“Adding to the inflated RAB, the borrowing costs and runaway primary energy costs, a further R10 billion a year overspend is attributed to excessive staff costs, due to the 52% higher than required headcount, giving rise to a 32% drop in manpower productivity over the past decade.

“Had the above factors been challenged more rigorously by NERSA over the past decade, we estimate that that Eskom should be operating at costs of R85 billion lower than it does today.”

 



Latest


18 Jan 2021
SA failed to get its act together on vaccines: here’s how

By Shabir A. Madhi, University of the Witwatersrand South Africa has an estimated population approaching 60 million. To achieve herd immunity against COVID-19,…

SA failed to get its act together on vaccines: here’s how

By Shabir A. Madhi, University of the Witwatersrand South Africa has an estimated population approaching 60 million. To achieve herd immunity against COVID-19, the government recently set the ambitious goal of vaccinating 67% of the population – roughly 40 million people. According to the outline of this plan, this would be achieved within 2021. But…

18 Jan 2021
Foreign holdings of nominal SAGBs increase to 35.7% in December

By RMB Research According to the National Treasury (NT), combined holdings (fixed-rate and inflation-linked) of government bonds increased to 29.9%…

Foreign holdings of nominal SAGBs increase to 35.7% in December

By RMB Research According to the National Treasury (NT), combined holdings (fixed-rate and inflation-linked) of government bonds increased to 29.9% in December from 29.7% in November. Nominal (fixed-rate) SAGBs: Investor holdings as at the end of December 2020 are as follows:Non-resident investors hold 35.7% (R791.78bn).Monetary authorities hold 22.6% (R501.79bn).Official pension funds…

18 Jan 2021
Getting to grips with private market investments

Investors put their money in expert hands to grow it through investments in shares, bonds, cash and property. These are traditional investment…

Getting to grips with private market investments

Investors put their money in expert hands to grow it through investments in shares, bonds, cash and property. These are traditional investment types available on the stock exchanges of most public markets. However investors can also choose to invest in alternative investments – available in private markets. This gives them access to investment types that are not available…

12 Jan 2021
Steven Nathan steps down as CEO of 10X Investments

After 15 years at the helm, 10X Investments’ founder and CEO Steven Nathan has resigned, effective 31 December 2020, in…

Steven Nathan steps down as CEO of 10X Investments

After 15 years at the helm, 10X Investments’ founder and CEO Steven Nathan has resigned, effective 31 December 2020, in order to pursue other interests.  This is according to a statement issued today. The statement says: In line with 10X’s succession plans, the company’s Executive Chairman, Henk Beets, will assume responsibility…


Top stories


10 Sep 2020
How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key…

How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key that dubbed America “The land of the free”, which stuck, to the unforgettable Mel Gibson monologue where an army of painted Scots were willing to trade their lives for the…

13 Apr 2020
Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19…

Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19 environment and what form a global market recovery will take.

13 Apr 2020
SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The…

SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The draft Bill, together with its explanatory memorandum, provides clarity with regards the tax relief measures President Cyril Ramaphosa announced on 23 March.

10 Apr 2020
When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved…

When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved to be most enterprising in acclimatising to challenges as they arise.


Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za