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FIFI PETERS: Let’s get again to the large story of the day, and that’s the story round electrical energy tariffs, that much-anticipated announcement coming from the National Energy Regulator in the present day, saying that as of April new tariffs can be kicking by which can be 18.65% greater for this monetary yr. This is fairly steep, however it might have been worse, as we all know that Eskom was asking for an entire lot extra, 32%.
We’ve Nhlanhla Gumede, the regulator member accountable for electrical energy regulation at Nersa for extra on the story. Nhlanhla, thanks a lot for your time. Can you please assist us perceive what elements Nersa accounted for in arriving on the 18.65% tariff increase that you’ve granted to Eskom?
NHLANHLA GUMEDE: Good afternoon to your listeners, and thanks for inviting me. In essence, this specific utility was pushed by the truth that it wanted to be thought-about utilizing the MYPD [multi-year price determination] methodology to a tee, which we did do.
So we didn’t deviate from the methodology. The methodology could be very particular by way of the way it recognises property, the charges of return, what it recognises by way of price, working prices, individuals and all the different pass-throughs, together with environmental points and the levies and issues like that.
But particular to this utility was the applying for use of diesel, as a result of there was a significant shift by way of what was initially utilized for by way of the diesel, and [a] transfer from an unique utility of some R210/211 million for diesel to an utility that went to R2.5 billion for diesel. So that turned a significant driver.
FIFI PETERS: So you might be saying that you simply didn’t grant Eskom leeway in getting extra for its diesel invoice proper now via greater tariffs?
NHLANHLA GUMEDE: What we’re saying is that we tried to steadiness, we tried to increase. Again, the entire level was that diesel was supposed for use as a final resort earlier than load shedding.
However, the quantity that Eskom utilized for, which was a 12% load issue of their diesel plan, was nonetheless permitting a big quantity of load shedding.
So the query was, as a result of clearly that’s not the goal from Eskom, however shouldn’t we be extracting extra efficiencies [from] much more of these crops, coal crops, as a result of at anybody time limit, six out of the ten coal crops aren’t working. We’re saying Eskom, that’s nicely inside your management. Get these again into operation. So we did permit some, solely 6%, and never the applied-for 12%.
FIFI PETERS: Of course the tariff will increase additionally kick in for the subsequent monetary yr. That’s 2024/25, the place you’ve granted Eskom an additional 12.74% increase. Again, not precisely what they requested for.
The problem, Nhlanhla, is that Eskom has stated that even in its preliminary utility, even the 32% that it had initially utilized for, this nonetheless didn’t account for the full price of manufacturing electrical energy. This continues to be not a cost-reflective tariff, as it have been. And the truth that it has [received] a lot much less – inasmuch as it’s going to cripple most households, and even companies aren’t liking this; we noticed the response in the marketplace – places its monetary place on extra shaky floor. I’d like to grasp what you concentrate on that, as a result of the monetary viability of Eskom is in a way the monetary viability of this nation.
NHLANHLA GUMEDE: Okay. Can I clarify this? In phrases of cost-reflective tariffs, Eskom solely utilized for a weighted common price of capital of 1.7%. I’m trying to minimize one yr. But by way of the methodology, it might have utilized for 11.5%. I’m speaking about the true weighted common price of capital which, if it had utilized for the total 11% of by way of the online property, would’ve been in its view a cost-reflective tariff – if it had utilized for that and been granted that.
Unfortunately, the entire system is that once we say sure, it’s not a full 11% that was utilized for, neither was it granted, however actually only one.7%, removed from a cost-reflective tariff.
The problem is that that 11% of the substitute price is just not a substitute price of all of the crops, together with crops which are dysfunctional. So in actual life one would’ve stated all the property which are truly not functioning, we’d have impaired that. You would’ve solely paid and labored out cost-reflective tariffs for these, and solely allowed these crops which are producing and promoting, that you simply then give them – they need to be capable of promote at a cost-reflective tariff.
So this argument is a bit troublesome in an atmosphere of deemed price, and never an atmosphere of actual price.
FIFI PETERS: There’s been courtroom motion between your self as Nersa and Eskom earlier than over issues pertaining to tariff will increase, the tariff utility. Are you anticipating such motion to occur once more, provided that Eskom didn’t fairly get what it requested for?
NHLANHLA GUMEDE: No. In this specific case, no. We are at pains to be sure that by way of the methodology, we utilized the methodology to the tee, together with accepting these revalued property on the worth of them being revalued, together with not adjusting these property for the property which are truly not producing, or adjusting by way of the power availability issue that we’ve got accomplished earlier than, and all the different changes that we’ve got beforehand accomplished.
This time we utilized the 2016 methodology to the tee. So now we’re not anticipating any courtroom circumstances.
FIFI PETERS: All proper. Nhlanhla, thanks a lot for your time. Nhlanhla Gumede, the regulator member accountable for electrical energy regulation at Nersa, actually explaining the complexities that went into arriving on the tariff, the 18.65% increase in that electrical energy tariff that will likely be kicking in as of April.
As complicated as the method was, that’s the backside line. We’re going to be paying extra for electrical energy.
