[miningmx.com] – ESKOM’S stretched balance sheet received some welcome succour after the National Energy Regulator of South Africa (Nersa) approved a recoup of some R7.82bn on under-recoveries between 2010 and 2013.
However, this will not be good news for South Africa’s mining sector, in particular, as the recoveries will be made in the form of higher electricity tariffs, although Nersa has not yet detailed the impact on specific customer categories.
In terms of Nersa’s Multi-Year Price Determination (MYPD), which sets down the tariff increase Eskom can charge over a specific period, Eskom has to submit its accounts to show if the projected tariff was correctly estimated. This is done after taking prudency reviews on certain Regulatory Clearing Account (RCA) cost items.
If the tariff is too high, relative to Eskom’s costs, then customers will benefit from a recovery and vice-versa if Eskom did not charge enough. Nersa found that the Eskom tariff was R7.82bn too low for the period 2010 to 2013.
“Eskom welcomes the decision regarding a balance in its favour,” the power utility said in a statement, adding that the reasons for Nersa’s decision would provide guidance on the criteria applied by the regulator.
“What is positive at this stage is that a robust process was followed in conducting the RCA process, which is an illustration of the application of the regulatory mechanism that supports the implementation of the Electricity Regulation Act,’ Eskom interim CEO, Collin Matjila said in a statement.
“Eskom looks forward to continue working with Nersa on further RCA submission in accordance with the revised MYPD methodology, as published during December 2012,’ Matjila added.
At its full-year results presentation on July 11, Eskom said that the 8% tariff increase it was awarded for 2014 to 2017 was insufficient to cover its costs including cost of capital on projects leading to a revenue shortfall of about R225bn.
Eskom initiated a cost-saving drive, but it said efficiencies alone would not be enough as it would increasingly struggle to service interest on its R254bn debt pile while the cost of capital for new projects would become virtually unaffordable, especially were it to suffer another creidt downgrade.
On June 18, Fitch affirmed Eskom’s credit rating but switched its outlook to negative while Standard & Poor’s put Eskom on a credit watch two days later.
Eskom CFO, Tsholofelo Molefe said another credit downgrade in the next 90 days would see the cost of money increase between 30% and 40%.
