Mining industry opposes Eskom's cash hunt

“Eskom’s survival cannot be based on continuing huge tariff increases,” the Minerals Council South Africa said on Friday, ahead of its testimony to the National Energy Regulator of South Africa (Nersa) opposing Eskom’s request for an additional R27.3-billion in revenue.

The additional revenue is intended to compensate for revenue shortfalls and cost overruns during Eskom’s 2018/19 financial year. Eskom has defined these amounts as:

• R5.5bn in respect of revenue shortfalls;
• R14.1bn in respect of coal (R12.4bn) and coal-related costs (R1.6bn);
• R3.3bn in respect of operating costs; and
• R3.4bn in respect of open gas cycle turbines usage.

Henk Langenhoven, chief economist at the Minerals Council, will present to Nersa the mining employers' view that Eskom's application would effectively increase already high electricity tariffs by a further 15% on average.

In a statement ahead of Friday's testimony, the council asserts Eskom’s revenue shortfalls and cost overruns are due to mismanagement on the organisation’s part, “and it seems inconceivable that the costs of this mismanagement should be passed on to household and business consumers.”

Eskom's revenue shortfalls, the council said, are due to load-shedding and load-curtailment, “a function of years of mismanagement and neglect of plant maintenance.”

“The excessive coal costs, the biggest factor at play here, are a function of Eskom opting over the years to sign expensive short- and medium-term coal contracts, and to reduce investment in and neglect of the more cost effective cost-plus mines and the even cheaper fixed-price long-term coal contracts,” it argues. “The latter category mines also had to revert to more costly short- and medium-term supplementary sources of coal.”

Eskom's “bloated workforce” was also blasted by the mining industry.

It contrasted a 43% increase in the size of the workforce since 2007 to only 3.5% additional production capacity.

“This is even worse when one considers the Eskom’s energy availability factor has fallen from 87.5% to 69% in the same period, suggesting efficiency has deteriorated drastically in the period. And average salaries at Eskom are extremely high.”

Langenhoven said job losses were a serious risk if Eskom's application was granted.

“The council’s economic modelling suggests the granting of Eskom’s application will result in more than 8,200 job losses at marginal mining operations. There would doubtless be equivalent impacts elsewhere in the economy. All of this could have been prevented had Eskom been run efficiently,” he said.

Noting that tariff increases of more than 523% since 2008 had already led to a decline in electricity sales volumes, the council argued: “Should the historical tariff increases be extended through the granting of this application, this trend of reduced demand will continue, cutting Eskom’s revenues even further. That may prompt Eskom to ask for a new regulatory clearing account next year, when this comes to fruition. This would be truly a ‘death spiral’.”