Eskom Seeks 25% South Africa Power-Price Increase to Meet Demand

Eskom Holdings Ltd. will ask if it can raise South African power tariffs by 25 percent from next month as the utility faces a 225 billion-rand ($18 billion) cashflow shortfall, struggles to meet demand and was cut to junk.

The utility needs more funds to continue its power-purchase programs that all end on March 31, and for the cost of using open-cycle gas turbines it runs as a last resort to plug a supply deficit, it said in a submission to the South African Local Government Association and National Treasury published on Johannesburg-based news website Moneyweb. It requires the comment from these two bodies before it can ask the national energy regulator for approval.

Eskom, which supplies 95 percent of power to Africa’s second-biggest economy, is struggling to maintain plants and has to ration supply to prevent its aging grid from collapse. Standard & Poor’s cut the utility’s rating to junk yesterday after the producer suspended its chief executive officer and three officials and started a probe into the state of the business. Moody’s Investors Service cut the rating to non-investment grade on Nov. 7.

“The country has descended into protracted periods of confidence-sapping rotational power cuts, which are designed to prevent the electricity network from experiencing a total blackout,” Eskom said in the application dated March 16. Efforts to improve supply “will come at a cost which would need to be funded,” it said.

Further Increase

Eskom in October got permission from the regulator to increase charges by an average 13 percent starting April 1, more than the 8 percent first granted, to help it recover unbudgeted costs for the three years through 2013. South Africa’s inflation rate was 3.9 percent in February.

In its new increase application, Eskom is asking for an additional 10 percentage points for gas turbines and power purchases from companies such as Sasol Ltd. and Sappi Ltd., and 2.5 percentage points for a 57 percent increase in the environmental levy, announced by Finance Minister Nhlanhla Nene in his budget speech last month.

President Jacob Zuma pledged in February to inject 23 billion rand in cash and offer other support to Eskom.

The utility spent 10.6 billion rand on running open-cycle gas turbines in the year through March 31, 2014, more than the 10 billion-rand allowance for the five years through March 2018. The producer has been firing the turbines, which used about 140 million liters (37 million gallons) of diesel in November, for as many as 12 hours a day, four times longer than they were designed for, to plug the power deficit.

Eskom expects to have spent 9.7 billion rand on the turbines in the 12 months through March, it said in the application. It needs needs to recover an additional 11 billion rand annually for three years starting April 1 to pay for them and the power purchases.

The increase, if granted, would come into effect on April 1 for direct Eskom customers and July 1 for municipal users, it said.

Eskom didn’t immediately respond to e-mailed questions.

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