Consumers lose again in Eskom-NERSA clash

Eskom demands that one of the R23bn missing bailout payments be loaded onto 2021/22 prices. OUTA suggests that Eskom and NERSA negotiate a discounted settlement over the remaining R46bn.

27/10/2020 06:47:33

                                                                                                                                                                                                                Consumers lose again in Eskom-NERSA clash



                                                                                                                                                                                                                Eskom’s urgent application filed recently to recover one of the R23bn bailouts in 2021 is understandable but it is harsh news for struggling consumers and businesses.

                                                                                                                                                                                                                There is no way to win in this situation.

                                                                                                                                                                                                                It’s the latest move in the legal battles between the inept regulator, NERSA, and the utility struggling with unsustainable debt.

                                                                                                                                                                                                                In July 2020, the high court ruled that NERSA was wrong to consider the R69bn government bailout to Eskom (R23bn a year for Eskom’s 2019/20, 2020/21 and 2021/22 financial years) as revenue instead of as an equity injection, and that this resulted in a significantly lower Eskom electricity price increase allowed for these years. The court ordered this to be added back to the electricity price.

                                                                                                                                                                                                                We note that NERSA conceded and acknowledged that it erred in this regard in the court proceedings leading up to the judgment against it. We further note that the judge ordered the error be rectified through appropriate tariff increases during the 2021/22, 2022/23 and 2023/24 financial years.

                                                                                                                                                                                                                NERSA was subsequently granted leave to appeal, not in respect of its self-acknowledged error, but to challenge the judge’s authority to prescribe the manner and timing of electricity price increases to rectify NERSA’s mistake. NERSA believes it should have the right to decide how much the prices should increase and over what period in refunding Eskom, taking into account the effect on customers and the economy. NERSA’s appeal – which is still pending – effectively suspended the court order.

                                                                                                                                                                                                                Eskom’s interdict this week calls for R23bn – one year’s bailout – to be loaded onto the 2021 price (the allowable revenue), so that it does not lose another year of this. It will add about 10% to the price increase from April 2021, in addition to the 5.22% already granted. In terms of the court order, it will increase the price from the already approved 116.72c/kWh to 128.24c/kWh.

                                                                                                                                                                                                                OUTA believes that NERSA has demonstrated a serious lack of competence and judgment in its misappropriation of R69bn as revenue instead of equity in making the Multi-Year Price Determination (MYPD) for the 2019/20, 2020/21 and 2021/22 financial years. While this has a negative impact of Eskom’s cash flow and sustainability, we also believe that the application of Eskom’s tariff increases following the court’s ruling in their favour will be a blow to an already over-burdened South African consumer and  the economy as a whole.

                                                                                                                                                                                                                The past decade of NERSA’s lack of leadership and political meddling has failed to hold Eskom’s past leadership to account for the utility’s soaring costs, borrowings and false asset revaluations. This is now playing out in very technical and costly court challenges that are having negative consequences on both Eskom and the public at large.

                                                                                                                                                                                                                OUTA believes that NERSA may be wasting more time by opposing Eskom’s interdict to have one of the three R23bn bailouts loaded onto the 2021 price, as this may lead to more bailout requests from Eskom to prevent it defaulting on its loans.

                                                                                                                                                                                                                Eskom effectively lost the R23bn a year for 2019/20 and 2020/21, due to NERSA’s ruling. OUTA believes this ship has sailed and that this situation provides NERSA and Eskom with an opportunity to reach a compromise on writing off at least part of the outstanding R46bn, in a way that takes into account the interests of Eskom, customers, taxpayers and the economy. 

                                                                                                                                                                                                                A soundclip with comment by Julius Kleynhans, OUTA Executive Manager: Public Governance Division, is here.


                                                                                                                                                                                                                OUTA is a proudly South African civil action organisation, that is purely crowd funded. Our work is supported by ordinary citizens who are passionate about holding government accountable and ensuring our taxes are used to the benefit of all South Africans.