[miningmx.com] – IN A widely anticipated move, Eskom today submitted
an application to South Africa’s energy regulator, Nersa, for a 16% increase in
electricity tariffs for each of five years starting April 2013 to end-March 2018.
The increase request would be equal to an increase in the price of electricity to 128
cents per kilowatt hour (c/kWh) by 2017/18 from 61c/kWh in 2012/13, and assumes a
1.9% compound annual growth in electricity demand or 2.5% in GDP growth over the
proposed five years.
The increase includes the cost of supporting the South African government’s
programme to have some 4,745 Megawatts (MW) of electricity supplied by
independent power producers (IPPs) which comprises 3% of the 16% tariff increase
application.
“Electricity prices need to transition to cost-reflective levels to support a sustainable
electricity industry that has the resources to maintain operations and build new
generating capacity, guaranteeing future security of supply,’ said Brian Dames, CEO
of Eskom.
Eskom said the price application, known as the Multi-Year Price Determination
(MYPD), follows two previous installments of tariff increases – MYPD2 and MYPD1,
which were both over a three-year period. The five-year period of MYPD3 was
intended to provide “a more gradual and predictable price path for households,
businesses, investors and the country as a whole’, Eskom said.
Eskom acknowledged that the application, which helps secure funding of Eskom’s new
capital project build to the 4,800MW Kusile power station only, was made in the
context of uncertainty as to who would build South Africa’s future energy capacity.
According to the Integrated Resource Plan 2010 (IRP 2010), some 9,600MW was to be
supplied from nuclear power sources by 2030. “It’s getting late to build nuclear. It
takes 10 years to build, let alone the planning,’ said Dames.
However, the tariff application assumes Eskom remains on track to meet the IRP’s
target that it should supply about 65% of the country’s electricity by 2030.
“This application is made in the context of some uncertainty about the course of the
electricity sector and Eskom’s role within it,’ said Dames.
“Long-term decisions regarding who will build South Africa’s future generating
capacity have yet to be made and this is being addressed by Government,’ he said.
BHP BILLITON
Eskom also said that renegotiation of a controversial contract to supply electricity to
Australian mining group BHP Billiton at below cost would be referred to Nersa, which
had powers to intervene in the matter.
“We will approach the regulator to review the power contract,’ said Dames at a press
briefing. “We think the action is now prudent.’ Eskom would continue to negotiate with
BHP Billiton, which recently installed a new management team for its aluminium
operations. Dames said he had met with the new team.
The contract dates from the building of a new aluminium smelter in Richards Bay by
then company Alusaf, which was owned by Gencor – ultimately a constituent of
Billiton when it merged with Australians BHP.
The contract affords BHP Billiton a variable cost of electricity such that power costs
fall when the aluminium price on the London Metal Exchange (LME) declines. The
mechanism was set at a time when South Africa had a surplus of electricity supply.
It’s estimated that BHP Billiton is currently paying as little as 8.8c/kWh to 10c/kWh for
its electricity owing to the low level of aluminium prices on the LME.
Eskom renegotiated a similar contract to BHP Billiton’s Mozambique aluminium
smelter, Mozal, but there has been no definitive progress on Bayside with BHP Billiton
referring the matter on appeal.
Nersa has some powers to intervene in the power contract negotiations. “It just
depends what they find,’ said Dames.
