Eskom needs to impose more price hikes to become profitable, says CEO

Quality of coal in SA's power stations worrying, says public enterprises minister Pravin Gordhan

17 February 2021 - 16:04
By nonkululeko njilo AND Nonkululeko Njilo
Eskom CEO Andre de Ruyter says it's a pity the company doesn't have the power to arrest people. File picture.
Image: REUTERS/Sumaya Hisham Eskom CEO Andre de Ruyter says it's a pity the company doesn't have the power to arrest people. File picture.

Power utility Eskom says it would have to impose an additional 15% tariff hike in the 2023 financial year — and resolve the existing municipal debt — to become a profitable business again.

This is according to CEO Andre de Ruyter, who made the revelation before the portfolio committee on public enterprises on Wednesday.

This was less than 24 hours after the Pretoria high court ordered the National Energy Regulator of SA (Nersa) to add R10bn to Eskom’s allowable revenue to be recovered from tariff customers in the 2021/2022 financial year.    

This allows the power utility to raise electricity tariffs by 15.63% as of April 2021.

“It is our anticipation that if we are able to have a further increase the following financial year of another 15% we will be able to cap further increases at a CPI-related measure.

“We say after that, provided of course we resolve the municipal debt challenge which is a significant one, Eskom should be a sustainable business. This is a promising way forward for us,” he said.

An Eskom official presented a detailed report on the state of the embattled parastatal to the committee. The report was divided into four sections: coal contracts, electricity tariffs, Medupi and Kusile project costs, and the Wilge residential development project.

Responding to questions, minister Pravin Gordhan told the committee members to be cognisant of the fact that the majority of issues faced by the utility had been as a result of decisions taken in the past 10 to 15 years, and not by the current management, saying many SOEs were “pretty much in a recovery phase”.

“What is worrying though is the quality of the coal at some of our power stations, which plays a highly deceptive role in the operational mechanisms and leads to trips of one sort or another. That then leads to shortage of supply in terms of megawatts that could lead, if we have too many of those, to the kind of load-shedding phenomenon that we have — though load-shedding as a separate items also requires more than just fixing the quality of coal,” he said.

Also commenting on the quality of coal, De Ruyter said the utility was in discussion with Transnet to establish an inland coal terminal.

“There is a significant impact in our power generation as a consequence of coal quality ... We have to find a way accommodate a greater diversity of coal suppliers, while being able to blend a marginalised coal quality.

“We are in discussion with Transnet to establish a so-called inland coal terminal that will enable us to still continue to buy from junior and emerging miners while being able to manage the coal quality going into our power stations more closely,” he said.

De Ruyter said there had been a number of proposals which the utility was exploring in that regard, however they were in early feasibility stages.  

Commenting on the Wilge flats project, which was undertaken in 2012 at a cost of R260m but has not yet been completed, De Ruyter said it had been a disappointing saga. The officials told committee that Eskom declared R840m as fruitless and wasteful expenditure as a result.

Committee members asked if there had been any measures put in place to recover some of the funds. Gorhan and De Ruyter both said the parastatal had made some progress in holding people to account.

“We will track down that money and there are ways of making that and when we make some progress and we have certainty about the path we will follow, we will certainly come back to the committee and parliament in the next fortnight or so,” said Gordhan.

Meanwhile, De Ruyter acknowledged that it had taken a long time to resolve the matter, citing it was unfortunate Eskom did not have powers of arrest and relied on law enforcement entities to do so.

“We are making progress with the Special Investigating Unit (SIU) to conclude civil claims from the former general manager to the tune of some R75.8m that we seek to recover to the individual concerned,” he said.