Nersa takes a tumble with Eskom

The Dentons report on corruption at Eskom has blown the National Energy Regulator of South Africa out of the water, say energy analysts.

While Eskom was squandering hundreds of billions of rand on fruitless and wasteful expenditure, violations of procurement procedure, conflicts of interest and operational inefficiencies, Nersa, whose job it is to protect consumers, allowed it to raise electricity prices by 440% between 2008 and 2016-17.

Law firm Dentons was commissioned by Public Enterprises Minister Lynne Brown in 2015 to investigate Eskom. Although she promised it was going to take a "deep dive", the investigation was abruptly halted after three months when it began naming names.

By then, it had uncovered only 10% of Eskom's wrongdoing, according to analyst Ted Blom, who heads the energy portfolio for the Organisation Undoing Tax Abuse (Outa). The report on this work was hidden from the public until recently exposed by the Financial Mail.

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Blom, who consulted to Eskom from 2006 to 2008, says when he offered to show Nersa evidence he had compiled of the corruption and maladministration at Eskom, he was turned away.

"I cried foul in 2008 and 2009 about the corruption at Eskom and I cried hard," he says. "They saw me as a troublemaker. They were not interested."

Some of his most damaging calculations, which he presented to senior executives at Eskom before taking them to Nersa, concerned the coal account.

According to the Dentons report coal is the biggest cost item for Eskom. It cites one case in which it paid R13.4-million for R4.2-million worth of coal. At a time when coal prices were falling by an average of 50%, Eskom's coal bill was growing at 18% per annum.

The Dentons report found there was no competitive tendering process for coal.

Nersa told Blom that its governing legislation didn't permit it to investigate corruption, only inefficiency. But neither did it seem to have investigated these.

The National Energy Regulator Act obliges Nersa to ensure that the expenditure Eskom claims is prudently and efficiently incurred.

The Dentons report makes it clear this has not been the case.

"Therefore one can assume that Nersa was not giving it sufficient attention," says energy expert Chris Yelland.

The Dentons report has confirmed that Eskom's internal processes have been far from efficient and prudent.

block_quotes_start CEOs from Brian Dames to Brian Molefe said openly the problem was Nersa did not give them what they needed. That was a con, as we now know block_quotes_end

"Nersa should have spotted this but they rely on Eskom to provide the information. They provide information that supports their application for a tariff increase."

Nersa is expected to interrogate the information supplied by Eskom through a rigorous public consultation process. The Dentons report shows fairly starkly that it has not done so aggressively enough.

"I think Nersa were naive. I don't think they expected Eskom to be lying to and misleading them," says Blom. As a result, they never interrogated the Eskom figures properly, "they just took what they were given and made marginal adjustments."

Yelland makes the point that Nersa frequently did not give Eskom the tariff increases it applied for and were attacked by Eskom for preventing it from being a sustainable business.

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"CEOs from Brian Dames to Brian Molefe said openly the problem was Nersa did not give them what they needed. That was a con, as we now know."

But Nersa could have known much earlier if it had paid attention. In addition to Blom's whistleblowing attempts a report by Deloitte in 2011 revealed fruitless and wasteful expenditure and the flouting of procurement procedure in 2008.

A report by the Special Investigating Unit which was handed to President Jacob Zuma in 2012 should have given Nersa plenty to chew on as well, as should have two exposés by TV programme Carte Blanche.

"It would have been clear over an extended period of time for anyone who cared to look that Eskom was not being as efficient as it should have been by a long way," says Yelland.

Blom says all Eskom should have got from Nersa were marginal price increases to adjust for inflation.

Instead, it received whopping increases of 27.5%, 31.3%, 24.8%, 25.8%, 16%, 8%, 8%, 12.7% and 9.4% between 2008 and 2016.

In August last year, the North Gauteng High Court set aside the 9.4% tariff increase Nersa had granted to Eskom in March.

The court found it should have been no more than 3.51%.