High energy users deny subsidies

The Energy Intensive User Group disputed a joint oral submission by civic environmental organisations groundWork and Friends of the Earth South Africa that the group is still making profit through Eskom's power buy-back programme.

During the first round of the National Energy Regulator of South Africa's (Nersa) public hearings into Eskom's application for a 16% annual tariff increase for the next five years, the organisations said using public money to prop up the profits of large energy users is an injustice that must be stopped.

Sizwe Khanyile, climate and energy justice coordinator at groundWork, said Eskom admitted in its application for the multi-year price determination for 2013-14 to 2017-18 that as long as tariffs are below cost-reflective levels users of electricity are, in effect, being subsidised by the government - and ultimately the taxpayer.

This also means that the major beneficiaries of that subsidy are those who use the most electricity and the implicit subsidy provided by electricity that is not cost reflective. Therefore it not only distorts the market's efficiency but also means that wealth is effectively being transferred to large electricity consumers, which is neither equitable nor desirable, Eskom said during its application in October last year.

The two organisations called upon Nersa to investigate the buy-back schemes and to make sure that the public has access to all the documents that have been signed between businesses and Eskom.

However, the Energy Intensive User Group, which is responsible for 60% of energy consumption, said the organisations have fallen prey to a number of red herrings that Eskom continues to use to threaten Nersa and scare the government into accepting its tariff application.

The group's programme manager Shaun Nel said it must be made clear that government does not provide any person, organisation or entity with any subsidies for electricity and the organisations must have misunderstood the argument that Eskom make on this issue.

"Eskom argues that if tariffs are below the cost to supply, subsidies will be required to support the continued supply of electricity.

"However, the way in which Eskom defines cost reflectivity is operating costs, capital costs, interest costs, depreciation and an 8.1% real return after tax. They argue that reducing this return reflects a 'subsidy' to the economy by government because government is 'foregoing' these massive returns," he said.

Nel said this is fallacious on two levels.Firstly, he said, the government has never made, nor is making, any equity injections into Eskom and therefore should not expect a return and accept that the state-owned entity be a driver of economic and job growth by providing secure and affordable electricity.

Secondly, while the Energy Intensive User Group does support Eskom's call for healthy financials and cost- reflective tariffs, the returns Eskom expects are too high for the country to bear,he said.

Khanyile said providing cheap and abundant energy to the big players in South Africa's industrial sector is at a cost to the people, both in terms of their right to live in healthy environments and their ability to meet their energy costs and a basic, dignified standard of living.

"This requires the South African government to turn away from fossil and nuclear technologies and focus national capacity on building a sustainable energy system under people's control and based on energy conservation and efficiency and renewable generation technologies," Khanyile said.

On power buy-back programmes, Nel said South Africa remains in a difficult electricity-supply situation and there is insufficient supply to allow Eskom the chance to do plant maintenance and reduce the significant losses of capacity from plant breakdowns.