Far-reaching consequences

By the time you read this, the National Energy Regulator of South Africa (Nersa) will be about halfway through its nationwide public hearings into Eskom’s sixth multiyear price determination (MYPD6) application.

The stakes appear high, given that the utility is requesting allowable revenue of R446-billion, R495-billion and R537-billion for its 2025/6, 2026/7 and 2027/8 financial years. If granted, such revenue would result in hikes to Eskom’s standard tariff of 36.15%, 11.91% and 9.1% on April 1 of each of the three years covered by the MYPD6.

In many ways, however, the hearings and the outcome are quite predictable.

Besides Eskom, there will be few, if any, other stakeholders championing a steep rise in tariffs, even as the utility makes the case for cost-reflectivity.

There is also little or no prospect of Eskom securing the type of increases that it has requested, not least because its shareholder Minister, Dr Kgosientsho Ramokgopa, has described the proposed hikes as unaffordable and untenable.

Moreover, owing to a triple conflict of interest Ramokgopa is unable to truly play his shareholder Ministerial role.

Firstly, the Electricity and Energy Minister is now responsible for policies that do not gel with Eskom’s financial interests, such as the promotion of competition and reducing its monopoly power.

Secondly, he also has responsibility for Nersa itself, whose primary mandate is that of protecting the consumer, albeit with the caveat that licensees remain financially sound.

Lastly, he has responsibility for driving the Government of National Unity’s apex priorities, one of which is to contain the cost of living.

Given these conflicts, Eskom’s so-called ‘shareholder Minister’ is hamstrung in being able to champion the utility’s causes.

In this instance, such constraints will offer some consolation. However, it remains a moral hazard that is itself untenable.

It is one that is likely to persist, however, given the legislative and political hurdles that remain in the way of the formation of a holding company for State-owned enterprises. Indeed, whether these will ever be cleared is far from certain.

Even more immediately uncertain, though, is the outcome of Nersa’s deliberations on Eskom’s retail tariff plan application, which proposes major changes to the tariff structure.

These changes are key to the future sustainability of both Eskom and the industry, but are also complex and are potentially pregnant with possible unintended consequences.

It is, therefore, crucial that stakeholders and the regulator have time to digest the proposals so that the final determination is properly informed and considered.

While delaying the implementation of these changes yet again would be highly problematic, so the hurried timelines that have been outlined.

Mercifully, the public hearing initially set for Christmas eve has been rescheduled for December 18.

It is but a small mercy, however, as most South African firms and residents will already be in summer-holiday mode.

Given the far-reaching nature of the proposals outlined, it seems unwise in the extreme to proceed as though a simple tick-box exercise will suffice.