South Africa Regulator Rejects Eskom Fee-Increase Request

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South Africa’s energy regulator denied Eskom Holdings SOC Ltd. permission to raise power prices further this year so the utility can buy electricity and diesel to help ease the need for scheduled blackouts.

Eskom’s application was incomplete and the regulator’s methodology doesn’t allow for pricing decisions to be selectively reopened, National Energy Regulator of South Africa Chairman Jacob Modise told reporters in Pretoria Monday. The company can apply to recoup costs through its regulatory clearing account or make a full, new request, he said. Nersa “has not closed the door on Eskom,” Modise said.

Eskom, which is struggling to meet demand in Africa’s most-industrialized economy, asked to raise prices by as much as 25 percent for the year to March 2016. That’s 12 percentage points more than the increase originally approved by the regulator. Delays in bringing new power plants to service have hurt the utility’s ability to meet electricity demand.

Yields on the utility’s $1.75 billion of bonds due in January 2021 climbed 17 basis points, the most since March 13, to 6.05 percent by 2:49 p.m. in Johannesburg. The rand declined 0.6 percent to 12.2713 per dollar.

“We note the decision made by Nersa, and we will study the details of the determination and consult with the shareholder before we can comment further on its impact,” Thava Govender, acting chief executive of Eskom while Brian Molefe is out of the country, said in an e-mailed statement.

More Information

Should Eskom decide to make a new price application, it will need to submit more information, said Thembani Bukula, Nersa’s full-time member for electricity.

“What we really require this time is information that is close to reality,” he said.

Of the additional increase, Eskom sought for the year to March, 9.6 percentage points was to run emergency turbines to reduce power cuts and to buy electricity from independent producers, the utility said in a presentation to Nersa last week. The rest would have been to pay for an increase in the environmental levy that the government is planning, but won’t apply should the state not introduce it.

Electricity prices in South Africa have almost quadrupled since 2007, when the country first had power shortages. Scheduled supply cuts, known as load-shedding, have taken place almost once every two days on average this year.

Negative Outlook

“The immediate takeaway based on this news is that there might not be an imminent improvement in the severity of load-shedding,” Razia Khan, head of Africa macroeconomic research at Standard Chartered Plc in London, said in an e-mailed note. “This will be bad for growth, and is also a negative for Eskom’s finances.”

The utility is struggling to finance a 225 billion-rand funding gap for the five years through 2018. Should the regulator not grant the requested increase in tariffs, Eskom would have to raise more debt, Business Day reported Monday, citing Public Enterprises Minister Lynne Brown.

Eskom needs to resolve issues including its communication with government, Bukula said. “I’m of the view and opinion that a well-informed Eskom” would not have gone ahead with the application for a further price increase, he said.

Nersa plans to introduce incentives in the next financial year linked to the effectiveness of maintenance conducted by Eskom, Bukula told reporters after the decision. While those incentives will escalate over the coming years, the regulator could claw them back if generation performance is poor, he said.

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