Eskom Yields Jump as Court Seeks South Africa Power-Price Review

  • Port Elizabeth companies alleged Eskom pricing award unlawful
  • Regulator is studying court ruling before outlining position

Eskom Holdings SOC Ltd.’s bond yields climbed the most in more than two months after a South African court told the energy regulator to review its decision to allow the utility to recoup unforeseen expenses through higher electricity tariffs.

A group of companies in Port Elizabeth alleged it was unlawful for the National Energy Regulator of South Africa to give Eskom permission to get back expenses it hadn’t budgeted for in fiscal 2014 by raising tariffs an average 9.4 percent in April instead of the more than 8 percent initially allowed. Those corporate customers, including light-alloy wheelmaker Borbet SA’s local unit, said the utility should have provided more regular updates on its financial situation, Eskom spokesman Khulu Phasiwe said.

The North Gauteng High Court on Tuesday said judging price applications isn’t part of its competency and sent the decision back to the regulator, said Phasiwe, adding that Eskom is studying the ruling. Nersa is also “studying and analyzing" the ruling, before communicating its position, the regulator said in an e-mail.

The ruling “introduces further uncertainty into the process of determining electricity tariff increases,” Elena Ilkova, an analyst at FirstRand Ltd.’s Rand Merchant Bank unit. said by e-mail. The decision “will have an impact on pending tariff applications by Eskom,” she said. The utility had planned to submit an application to recover costs for fiscal 2015 and 2016 by the end of July, totaling about 41 billion rand ($3 billion).

Yields Increase

Yields on the utility’s dollar bonds due February 2025 jumped 26 basis points to 6.34 percent, heading for the biggest increase since June 24.

Eskom, which provides about 90 percent of the country’s electricity, had to buy diesel to run costly emergency turbines in 2014 and 2015 to curb regular power cuts in the continent’s most-industrialized economy. Power prices in South Africa have almost quadrupled since 2007, when the country first had shortages that resulted in scheduled cuts known as load-shedding. 

Eskom has stabilized the performance of its plants and rolled out a cost-cutting program that saved 17.5 billion rand in the year ended March 31, about a third more than targeted. The producer had wanted to increase prices by 18 percent in the year that started April 1.

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