Eskom chairman to brief govt on tarrifs

9 October 2009
By Evan Pickworth
Chairman of Eskom, Bobby Godsell, said on Friday he was in the process of briefing government on the proposed 45%-66% increases in electricity tariffs over three years, but could not say if they would support it.
Speaking at the Steel and Engineering Industrial Federation of SA presidential breakfast at the Johannesburg Country Club, he said Eskom had delivered a 93-page document to government and government would make its views clear on the matter.
He said further meetings were planned for the weekend, but emphasised throughout his speech that the current tariff structure would not support South Africa's growth needs going forward, nor would it entice investors to open their chequebooks.
He strongly recommended SA start looking at alternative sources of power, especially nuclear and solar, with the private sector taking ownership.
He also called for 30% of local generation being private, but said this had not been possible due to the fact that electricity in South Africa was sold at a half to two-thirds of cost.
He noted the high costs of reliance on coal, with Eskom's future plans requiring 16 new coalmines.
Godsell said that the first phase of Eskom's build programme was on track and that 18 000 megawatts was planned to be added to current production of just 40 000MW.
But he also highlighted the gargantuan nature of the R385 billion capex programme, being four times the size of Gautrain and six times the expenditure on 2010.
While acknowledging he did not have the most popular job in the country, he said it was time to focus on the hard realities, make tough choices and stop all the "Eskom bashing", which would not achieve anything.
He noted that Eskom was not turning off people's power at the moment if that had been done after May, it was by City Power.
"If we don't address the tariff, we will not have people coming in," he said, when referring to the need to raise capital and for private investors to get involved.
He said that Eskom's borrowing requirement this year was R50 billion, but he again highlighted that for it to be an exciting "cash cow" for investors, prices needed to exceed costs going forward.
Godsell said coal stocks were now at 42 days average from being at 4-12 days during the recent power crisis, and said Eskom had to take the blame for not acting sooner on that score.
"Eskom got it wrong. I don't think we'll get it wrong again," he said.
He also pointed to structural problems, like the fact that had not been new power generation in SA for 20 years, or on scale plans for 30 years.
He said any subsidisation done for consumption going forward needed to be "completely transparent", with 99% of South Africans probably accepting that some form of subsidisation for the poor was needed.
He said Eskom was "not in great shape" to subsidise any projects at the moment.
He said it was not a viable entity if it ran losses of three billion rand a year, like it is currently. But he said the company was already starting to cut back on operating costs (R22 billion), but would face high salary charges as it would be hiring highly skilled people.
He said due to the fact that it was so cheap, electricity usage in SA had been wasteful in the past and consumers should also think of ways to save, like getting a solar geyser (40% saving), changing to better light bulbs (20%) or even getting teenagers to turn lights off.
On the big picture, Godsell said Eskom planned 52 000 extra megawatts in 25-30 years at a projected 6% growth rate.
But he said he felt this "could be high". He said, while difficult, the national debate had to include assumptions on the growth rate and electricity intensity.
He noted that Japan, for example, had 120 000MW at its disposable and SA only 40,000MW, but SA had very high intensity on its mines and particularly in the smelting process.
He said SA should be aiming to move from developing to developed economy status in 25 years.
"Clearly we need to very significantly increase electricity supply," he emphasised.
On a positive note, he said that Eskom was now being vetted on its maintenance externally and had just received a "big green tick".
Source: I-Net Bridge

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