Eskom overspent on primary energy costs and should not get refund: Outa

Eskom has spent about R286-billion more than it should have on primary energy costs over the past seven years.

This is the claim by the Organisation Undoing Tax Abuse as it opposes Eskom’s Regulatory Clearing Account (RCA) applications to the National Energy Regulator of South Africa (Nersa) for a R66.6bn revenue claw-back.

Nersa published Eskom’s application in January and Friday was the last day for stakeholder comments.

Nersa will host public hearings on Eskom’s application in May and will make its decision on August 29.

Outa said it objected to Eskom’s applications and recommended a zero recovery.

RCA is a tracking mechanism that compares certain uncontrollable costs and revenues assumed in the multi-year price determination decision by Nersa to actual costs and revenues incurred by Eskom.

“The Electricity Regulation Act stipulates that only an efficient utility is entitled to acquire a return on its operations for regulatory purposes‚” Outa’s energy portfolio manager‚ Ronald Chauke‚ said.

He said Eskom was not an efficient organisation and Outa believed that if Eskom’s leadership applied prudent primary energy procurement and strong auditing practices‚ the primary energy expenses incurred by Eskom over the past seven years should be around R286bn lower than what they were.

Outa estimated that primary energy expenses‚ which were largely related to coal procurement‚ had increased excessively since 2010.

He said this coincided with rampant corruption‚ dubious coal contracting and poor management of Eskom’s affairs at the expense of public interest.

He said Outa’s research revealed that the average cost of primary energy had increased by 347%‚ from an average of R18.7bn per annum between 2007 and 2009 to R83.6bn per annum during the RCA application period.

“We are aware that Eskom procures most of its coal requirements through long term and ‘cost-plus’ contracts‚ indicating that the spot prices should not impact the overall coal bill‚ as Eskom disclosed in its application‚” Chauke said.

He also said excessive capital expenditure overruns on new build projects had added a further R20bn per annum in interest costs.

Chauke said Eskom’s leadership had not effectively managed its human resources and productivity‚ translating into an estimate increase of 14‚900 staff (46%) while output had declined. He said this had resulted in R9bn in extra costs.