Responses to Eskom’s request for compensation for additional costs and for lower than expected sales in 2013/4 should be designed to support industrialisation. From this standpoint, the regulator’s response to Eskom’s proposals should take into account the following.
- Eskom should be guaranteed compensation for the cost of diesel and other measures to avoid loadshedding, since otherwise it would be effectively incentivised to loadshed rather than incur additional expenses.
- The multi-year price determination (MYPD) did not foresee the structural decline in electricity demand since around 2011, largely as a result of the end of the commodity boom combined with the rapid rise in electricity tariffs, and should therefore be revised to take it into account. That in turn would affect both the scale and nature of investment in new generation capacity.
- Efforts to hold down tariffs as a way to enforce greater efficiency at Eskom have had severe unintended consequences, fostering in particular inadequate investment and maintenance. Instead, tariffs should be managed to ensure responsiveness to shifts in supply and demand and to maintain a reasonable rate of return at Eskom, as the Act requires, while the state as shareholder should work with Eskom to develop specific and practical measures to address the obvious areas of inefficiency around staffing, coal procurement, subsidies to the aluminium refineries, planning for construction and debt management.