South Africa’s Utility May Seek 20% Power-Fee Increase, RMB Saysby
Eskom expected to as to recover more than 40b rand of expenses
Regulator will determine when the increase will be effective
South Africa’s state-owned power utility may ask the nation’s energy regulator for permission to raise prices by more than allowed so it can recoup more than 40 billion rand ($2.7 billion) of unbudgeted expenses incurred over two years, an analyst at FirstRand Ltd.’s Rand Merchant Bank unit said.
Eskom Holdings SOC Ltd. can ask the National Energy Regulator of South Africa, which sets the prices the producer may charge its customers, to recoup unanticipated costs incurred in prior years. Nersa has allowed the utility to claw back extra expenses for both 2013 and 2014 through higher-than-planned tariffs in the two subsequent years. Prices have climbed an average 15 percent annually since 2006, data on the utility’s website show. That compares with average inflation of 6.2 percent in the period.
While difficult to estimate how the potential request would raise power prices, “it is likely to translate into a standard tariff increase ‘ask’ around the 20 percent mark," Elena Ilkova, a Johannesburg-based analyst at RMB, said in an e-mailed response to questions. The regulator will determine when the increase will be effective, she said.
Eskom, which provides about 90 percent of the country’s electricity, had to buy diesel to run costly emergency turbines in 2014 and last year to curb power cuts in Africa’s most-industrialized economy, where growth has slowed. Electricity prices in South Africa have almost quadrupled since 2007, when the country first had shortages that resulted in scheduled cuts known as load-shedding. The utility 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.
Ilkova’s expectation that Eskom will ask the regulator to recover more than 40 billion rand for the 2015 and 2016 financial years was first reported by Johannesburg-based newspaper Business Day Friday. The utility didn’t immediately answer a call and e-mail seeking comment.
The utility got 20 billion rand of loans from the African Development Bank, helping it fund new power plants following years of under-investment that crippled South Africa’s electricity supply, it said Thursday.
Eskom will also look in its 339 billion rand, five-year capital expenditure plan for further savings, Ilkova said.