| Fri 9 Mar 2012, 16:39 | | BIESKM - Eskom Holdings SOC Limited - Eskom and the DPE respond to President |
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JSE
BIESKM
BIESKM - Eskom Holdings SOC Limited - Eskom and the DPE respond to President
Zuma`s call to reduce tariffs in support of economic growth a
Friday, 09 March 2012: The Minister of Public Enterprises, Malusi Gigaba, said
today that the lower electricity price increases from 1 April 2012 were the
result of a combined effort by government and Eskom to lessen the impact of
higher electricity tariffs on consumers and the economy without compromising
Eskom`s ability to keep the lights on and ensure its long-term financial
sustainability.
The electricity industry regulator, NERSA, earlier announced that it had
approved electricity tariff increases averaging 16% from April this year, a
steep reduction from the 25,9% originally approved.
This reduction has been enabled by concessions by the government as Eskom`s
shareholder regarding its allowed return on assets, by improvements in Eskom`s
financial position that have enabled it to rephase and save on capital
expenditure and funding without jeopardising timelines on essential projects,
and by electricity demand forecasts lower than predicted three years ago.
Gigaba said: "The reductions will have immediate benefits for businesses and
households, and followed a request from President Zuma that Eskom investigate
ways to reduce price increases over the next few years, in support of economic
growth and job creation. The initiative by government regarding its allowed
return on assets represents a huge investment in the economy. "
He appealed to businesses and local authorities to pass on to their customers
the reductions they receive from Eskom, as the lower tariffs were intended to
promote job creation and economic growth.
Gigaba said that in order to obtain more predictability in the move to cost
reflective tariffs, Eskom would propose a longer period than the standard three
years for MYPD3, which comes into effect in April 2013.
"While details have yet to be finalised and are subject to public consultation
and regulatory approval, this should enable Eskom to ask for lower price
increases than had been envisaged, in return for price certainty over a longer
period," he added.
Gigaba noted that, despite Eskom`s tariff increases over recent years, South
Africa continued to have electricity prices that are among the lowest in the
world.
Explaining how the price reduction was achieved, he said that government, as
shareholder in Eskom, had agreed to defer the shareholder return due to it in
the 2012/13 financial year. In addition, a reconciliation of projected and
actual recovery in MYPD2 which would have been balanced out in MYPD3, could now
be applied in the last year of the MYPD2 period. Coupled with lower demand
projections and Eskom`s improved financial position which had enabled it to
review capital expenditure and funding priorities, these factors had enabled the
revised 2012 tariff proposal.
"It is very important to ensure Eskom can manage financially and operationally
with this reduced revenue. Before the revised submission was made, we asked if
Eskom would be able to maintain its power stations, build new ones up to the
completion of Kusile and keep the lights on while also maintaining its financial
ratios and its standing with international rating agencies."
"The answer to that is yes. This is due to a much healthier financial and
operational position, largely as a result of MYPD2 tariff increases, to
operational efficiencies achieved and to a careful rephasing of Eskom`s funding
requirements and elements of its uncommitted capital expenditure programme
together with projected savings."
Gigaba emphasised that in return for lower electricity prices, all South
Africans would have to reduce electricity consumption further, and develop an
energy-saving culture.
"As with its programme to keep the lights on, Eskom cannot do this alone. For
this lower price path to be sustained, the whole nation is going to have to
subscribe to the country pact proposed by the President. Until Eskom`s new power
stations are on line, we must all collaborate to reduce demand wherever
possible, and make it a habit to use electricity wisely and efficiently."
Eskom Chief Executive Brian Dames gave the assurance that the lower tariff
increase would not compromise Eskom`s financial viability, and that the changes
to Eskom`s capital expenditure and funding timetables would not affect its
ability to complete its new power stations on schedule, or to keep South
Africa`s lights on.
"The decision to propose lower tariffs this year is recognition that there have
been significant changes in the economic landscape and in our own operating
environment since 2009, when we applied for the MYPD2 increases."
Dames said that Eskom would be proposing an extended price path for MYPD3,
longer than the usual three-year period, in order to help Eskom achieve
acceptable predictable financial and credit ratios within the period.
Paul O`Flaherty, Eskom`s Financial Director and Group Executive of Group
Capital, noted that capital expenditure savings and rephasing would be achieved
through efficiencies and better management. On funding, he said that when
compared to 2009 Eskom`s access to debt had improved and most of its funding
plan had been secured. This meant that Eskom could relax its aggressive policy
of advance funding for projects, slowing down the rate of debt uptake to reflect
actual cash requirements more closely.
ENDS
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