Eskom proposes an affordable phasing-in of its tariff review
14 May 2018
At the final public hearing held in Midrand today, Eskom has proposed a phasing-in of the variance in revenue between what the National Energy Regulator of South Africa (NERSA) allowed under the multi-year price determination (MYPD 3) and what was actually spent in the three years (2014 – 2017), which now amounts to R62bn after Eskom sacrificed a further R4,6bn. Eskom has been presenting its case and responding to questions raised by stakeholders at public hearings that started on 16 April in Cape Town and moved across all provinces of South Africa.
Calib Cassim, Eskom’s Acting Chief Financial Officer reiterated the basic principle and the legislative nature of the application that Eskom has made to the Regulator. “The consistency and predictability of the methodology is important. We have taken the lesson from the NERSA decision of 2013/14 of our Regulatory Clearing Account (RCA) application and made this application accordingly, based on the MYPD 3 regulatory methodology. One of the NERSA Regulatory principles is predictability and consistency: “Decisions must be consistent and should have a reasonable degree of predictability based on previous rulings in similar case”. It is therefore our hope that the same principles will be applied when the decision on this current application is made in June. We have also noted that rating agencies show a keen interest on the tariff decisions made by the Regulator, which makes it critically important for Eskom’s sustainability.”
Fitch Ratings, May 2018: “The rating actions reflect the continued liquidity weakness, but also the progress. …including an update on RCA that was brought forward to June 2018 by the regulator. Failing that and the RCA resolution, we may downgrade Eskom's ratings by one or more notches. Without …. positive resolution of the RCA, we estimate that operating EBITDA will be insufficient to service debt for FY18-20”
Moody’s January 2018: “The rating action also factors in the December 2017 decision by NERSA to allow Eskom to increase revenue by 5.23% in FY2018/19, well short of the 19.9% proposed by the company. This decision follows a 2.2% tariff increase for 2017/18 and will put further pressure on the company's already weak cash flow. Nonetheless, NERSA have announced that they will consider Eskom's ZAR66 billion application for under-recoveries and overspending relating to the three prior years, which would benefit the company. Given users' sensitivity to tariff increases, these amounts may take some time to be monetised.”