It is not sustainable to further subsidize consumers – Eskom



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Eskom's balance sheet has been providing subsidies to consumers for many years, but this is no longer sustainable and has reached a breaking point, the state energy company said late on Monday.

Eskom continues to share the rationale for the 15% annual average application of the electricity increase for the fourth multiyear pricing (MYPD4) and the regulatory balance of the Compensation Account (RCA) for 2018 to the National Energy Regulator for Africa South (Nersa).

Nersa's public hearings on enforcement continue and the latest one has been held in Rustenburg for stakeholders in the Northwest.

"The main cause of the price increase required is the phasing out of the current price subsidy, which does not prevent the subsidization of specific customer categories in the future," said Deon Joubert, Eskom's corporate specialist for finance.

"Eskom is aware of the potential impact of the increase in several sectors, but is in a very difficult financial position … however an objective analysis indicates that its debt situation is mainly or more than 80% due to having had assume responsibility for the construction program, without the price of electricity responding as needed. "

Eskom has argued that although higher tariffs are required to reduce demand, reluctance to raise prices to reflect costs will deny Eskom the ability to finance the investments and maintenance required to sustain adequate supply security.

"Inadequate supply security has more negative repercussions on economic growth and social welfare than raising tariffs," Eskom said.

Looking closely at unit costs, a World Bank analysis found that Eskom's unit costs are very low compared to other public services in sub-Saharan Africa, Eskom said in a statement.

It was found that Eskom's unit cost was the third lowest.

"Similarly, Eskom's average price is very low compared to other public services in sub-Saharan Africa – but all are pricing their electricity at unsustainably low levels and are therefore – or having significant financial difficulties," Eskom said.

The report calculated that 81% of the difference between the current price of Eskom and its costs is due to the low price, Eskom said.

In its presentation, Eskom analyzed how its actual and projected electricity price from 2010 to 2024, compared to external references.

"In the analysis, it became clear that, similar to Nersa's future pricing route, the various MYPD price paths that Eskom called for would be stabilized when prices reached prudent and efficient cost levels – which Eskom half way between Nersa's upper and lower price caps, "said Eskom.

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