One of the consequences of Eskom’s request for a 60% rate hike is that the inefficient parastatal would end up with a R12.7bn profit according to Moneyweb. That puts Eskom in the same league as a few of South Africa’s mega corporations. Standardbank recently produced a record profits of R12 billion after one of its best financial years.
The news gets even worse for the load shedded electricity consumer, according to documents presented to the National Energy Regulator (Nersa) this is the first of many rate hikes and Eskom wants a 43% real increase for the 2009/2010 financial year.
Eskom argues that the rate hikes are necessary to boost its financial rating. Standard and Poors recently placed Eskom on its credit watch list. Eskom needs to finance R300 billion in order to expand existing capacity.
Another factor used by Eskom management in justifying the ad-hoc increase is rising coal price, a major input in its generation process. Coal prices have increase by about 30% since November 2007, however this is still less that the 60% rate hike requested by Eskom.
Critics of Eskom argue that the price that Eskom pays for its coal is considerably less that the spot price as they have long term supply contracts in place. Its also difficult to generalise using export quality coal as a benchmark as there are various grades of coal that Eskom uses in its processes.
Eskom deliberately ran down its coal stockpiles to dangerously low levels resulting in higher short-term profits. This resulted in increased management incentives. South African electricity consumers are now being asked to finance Eskom’s depleted operating capital.
All of this raises serious questions regarding Eskom’s management incentive schemes based primarily on profitability. Perhaps management incentives should not be based on profitability, but the ability to supply its customers with electricity. Less load shedding and more up time equals greater bonuses for Eskom management and staff.
As the debate continues the poor electricity consumer still needs to deal with Eskom’s arrogant “punitive load shedding”.
I am a consumer and a business owner. When the power goes – I am screwed and I am not making any money.
A while back we wrote an article on the question of electricity being a right or a privilege:
http://www.manufacturinghub.co.za/20080324_0001.htm
Lets for a moment approach this like a business.
Facts:
1. Eskom has a bloated bunch of fat cats who SHOULD have done something about the crisis a long time ago.
2. This crisis was predicted over a decade ago when Eskom and Govt. was told by various departments – “in 2007 you will be screwed”. Google it on the net and you will find the position papers
We can grumble as much as we want now about the tariffs (that bring us in line with international rates) but its not going to help. We need a dependable electricity supply and Eskom needs many billions to develop it.
How many business owners are losing far more than 60% increase on their elec bill each month on unproductive staff?
What about commission based earners – how many of them are losing out on their livelihoods because business is not being conducted? Is this the business owners fault?
Instead of stuffing around the hikes should be put through and business people from industry should be running a massive upgrade system as a business project not as a political hot potato.
You raise some excellent points Manufacturinghub.co.za. Having access to cheap electricity has certainly spoilt South Africans and we need to bring our tarrif structure to more accurately reflect the true cost of providing it.
The harsh reality of the situation is that a lot of people won’t be able to afford electricity once these rate hikes go through.
The point of this website is that people(homeowners and businesses) need to become less reliant on the idiots at Eskom and seek alternative methods to provide their power needs(hopefully environmentally friendly solutions)
Thanks for your comments.
Agreed.
Its a catch 22 situation but we need to take the pain now so we can solve this problem down the line and keep the economy pumping…