Stand by for big power price hike

The National Energy Regulator says Eskom's costs exceeded projections in the three years until 2013, paving the way for higher power prices from April.

The company that provides 95% of South Africa's power did not recover R7.8-billion of spending incurred from 2010 to 2013, the regulator said in a statement yesterday.

Eskom in August asked that it be allowed to get back R18.4-billion. Nersa, which last year said the utility could raise prices an average of 8% in each of the five years until March 2018, did not say by how much tariffs would go up.

"There will definitely be a tariff adjustment next year," Charles Hlebela, a spokesman for Nersa, said.

For Eskom to recover the R7.8-billion, prices would have to increase by between two and five percentage points, he said.

Eskom is struggling to supply sufficient power after a decade of under-investment in generation. Its primary energy costs, mostly coal, rose at rates of 23% to 31% in each of the three years to 2013 and were R60.7-billion in 2013, exceeding the regulator's projections by 34%.

Eskom uses coal for about 85% of electricity and has been running more expensive, diesel-fuelled open-cycle gas turbines to meet demand.

Eskom spokesman Andrew Etzinger could not immediately comment when contacted yesterday. South Africa's inflation rate was 6.6% in June, a four-year high.

"This is the first step before tariff increases are authorised by Nersa," Peter Attard Montalto, an emerging-markets economist at Nomura International, said. "Assuming a five percentage point increase, it would add an additional 0.2 percentage point onto headline inflation from July, rising to as much as 0.4 percentage point over a year."

But Nersa did not decide on the liquidation of the balance.

Eskom cannot determine what the impact will be on specific customer categories as Nersa has still to decide how this balance will be liquidated.