Eskom Seeks 16% Power Tariff Increase Yearly in South Africa

Eskom Holdings Ltd., the state-owned supplier of about 95 percent of South Africa’s power, is seeking a 16 percent increase in average electricity prices to avoid a repeat of energy shortages that halted mines in 2008.

Eskom, which has to apply to the National Energy Regulator of South Africa for permission to raise tariffs, wants annual increases of that size from 2013 up until 2018, according to a statement today. An annual 16 percent increase, which includes 3 percent to support independent power producers, would raise prices to 128 cents per kilowatt hour by 2017 from 61 cents.

Eskom is spending about 500 billion rand ($58 billion) through 2017 on reviving old power plants and building new ones to overcome a generation capacity shortage that halted gold, platinum and chrome mines in January 2008. It increased tariffs by an average 25 percent for the last six years. BHP Billiton Ltd. (BHP), Xstrata Plc (XTA) and Anglo American Plc (AAL)’s aluminum, ferro- chrome and platinum smelters are among its largest customers.

“It’s very important that we do invest in the future,” Chief Executive Officer Brian Dames told reporters at a briefing yesterday in Johannesburg, where the company is based. Outdated capacity will be decommissioned, he said, at a time when the utility added 155,000 customers last year.

‘Big Issue’

“Coal is the big issue” with price pressures driving costs up to 250 billion rand for the next five years while the company strives to keep manpower costs below inflation, Dames said. Eskom is “very concerned” about mining projects due to supply the company after 2018, he said in a presentation today.

Higher prices boosted Eskom’s net income 57 percent to 13.2 billion rand in the year ended March 31 while volumes sold were little changed from a year earlier. Standard & Poor’s downgrade of Eskom’s credit rating last week to match a lower sovereign rating is a concern, the utility said Oct. 17.

Eskom expects power shortages to last until the end of 2013 when the first unit of the Medupi coal power plant it’s building in the north of the country starts generating power. The nation had rolling blackouts across the country in the first quarter of 2008 as Eskom rotated the limited power available.

The government prevented Eskom from expanding between 2004 and 2008 as it sought to attract investments in the power industry.

Renewable Support

The tariff increases account for 13 percent a year through 2018 for Eskom’s returns and depreciation of capacity expansion up to the completion of the Kusile power plant. It also includes 3 percent to support the introduction of independent renewable energy power producers through a bid program of 3,725 megawatts and the Department of Energy’s 1,020-megawatt peak plant.

“Residential tariffs should be restructured to simplify understanding and optimize the protection of the poor, while high-usage residential customers pay more cost-reflective prices,” Eskom said in the tariff determination summary.

Protests that have spread through South Africa’s mining and trucking industries also took hold last month at the site where Eskom is building the 4,764-megawatt Medupi power plant, due to start generating power next year.

Civil engineering contractors, whose grievances were unclear, damaged equipment and vehicles at the construction area in northern South Africa, Eskom said in a Sept. 6 statement.

“We cannot afford any more industrial action,” Paul O’Flaherty, the utility’s finance director, said at the presentation. The last interruption at Medupi lasted for three weeks, he said.

Eskom has approached South Africa’s Chamber of Mines, which negotiates wages for most of the country’s gold and coal producers with unions, about ensuring coal supply for the state- owned power utility, chamber spokesman Vusi Mabena said in a Oct. 12 phone interview.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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