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Eskom may revise tariff proposal

Allan Seccombe | Mon, 30 Nov 2009 12:19
[miningmx.com] -- SOUTH AFRICAN electricty utility Eskom is expected to submit a revised proposal to the National Energy Regulator of SA (Nersa) on Monday outlining a lower tariff increase than the annual 45% hike over the next three years.

A spokeswoman said more details would be available later on Monday, the South African Press Association (Sapa) reported.

This follows reports on a local Johannesburg radio station, 702, that Eskom would tell Nersa on Monday that it could settle for a reduced increase but there would be trade offs in its plans to build new power plants.

The ruling African National Congress, its alliance partner, the Congress of South African Congress of Trade Unions (Cosatu) and business have said the proposed increase which would leave electricity 200% more expensive in three years' time was unacceptable. Eskom has this year hiked tariffs by 31%.

The mining industry reacted with dismay when Eskom unveiled a proposed tariff hike of 45% a year over the next three years to fund a massive capacity expansion programme to meet rising demands for energy. It warned of substantial increases in an already heavily loaded cost line, which has severe implications for jobs.

Gold miners in particular have warned of shaft closures and job losses, a very sensitive point for the government, which is doing what it can to stimulate job growth and alleviate widespread poverty.

Gold miners warned their costs could rise between 15% and 25%, further eroding their exposure to record high gold prices already diminished by a strong rand.

Mining companies are approaching Nersa collectively through the Chamber of Mines and individually on what tariff increases would mean for their businesses and to make suggestions on alternatives funding proposals.

One CEO of one of the country's largest mining houses has said the capacity and funding shortages at Eskom cannot be fixed within five years but will take at least two decades to resolve.

The issue is not only the direct cost on mines of increased power charges but the knock-on charges coming from their suppliers like steel, cement and chemicals.

Up to one million people, including workers in the sector and their dependents, would likely suffer if if a proposal was implemented by Eskom to hike tariffs by 45 percent a year over the next three years, Mark Cutifani, AngloGold Ashanti CEO, said recently.

"As a consequence I do not believe the Eskom 45-45-45 proposal will fly," Cutifani said. "Certainly the indications we've had from within government is that they understand the problem."

Ian Farmer, CEO of Lonmin, told a recent results presentation that the word on the street was Eskom could increase tariffs by 30-35% a year over the next three years.