EIUG

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EIUG

• Eskoms Application for an Interim Price Increase

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Eskoms Application for an Interim Price Increase
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Introduction

• The EIUG is an association of large energy
  intensive consumers and its main objective is to
  promote the interests of these users for the
  benefit of economic growth, prosperity and
  development in South Africa.
• Membership currently consists of 35 of the
  largest energy consumers that consume in excess
  of 40 of the total electricity sales in South
  Africa.
• The EIUG members are amongst the leading job
  providers and creators of employment in the
  country but are dependent on affordable, reliable
  electricity supply to continue driving their
  businesses and the GDP.

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The EIUG fully appreciates that

• Eskom requires a tariff increase to cover the
  inflationary aspects of its activities.
• Eskom has a massive new build programme that
  requires financing.
• South Africa can not afford an insolvent Eskom

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However, the EIUG is at a loss to understand why

• The Eskom application is poorly substantiated.
• The logic in proposing 34 or any other such
  number is not defined
• Given that the increase is poorly defined, why
  the application is late.
• The consequent retrospective tariff increase
  effectively results in a request for a 45
  increase in the next three quarters.
• If the funding model is inappropriate why was
  this not identified in an early increase
  submission to the NERSA so that the funding
  issues can be highlighted and dealt with in a
  timeous fashion.

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The EIUG has significant concerns

• With the limited insight to which the Industrial
  Users are privy, it is apparent that Eskoms Opex
  expenses are out of control.
• Generation availability improvement has been
  sighted as a significant cause in increased Opex
  costs but has not been separated out of the Opex
  cost mix to substantiate this component.
• The liquid fuel bill has also shown an increase
  despite the consumption being less and the price
  down from the previous year

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Eskoms Fuel costs
Eskom fuel costs have escalated at an alarming
rate as illustrated by the table below
Source Eskoms annual reports and the interim
price application
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Eskoms Opex excluding Fuel costs
Eskom operating costs excluding roads, liquid
fuel, non-DSM expenditure non-Eskom
generation, have shown a similar increase, far
exceeding the consumer price index as shown below
Source Eskoms annual reports and the interim
price application
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The Issues

• These costs that have been incurred have to be
  met and this profligate expenditure by Eskom
  needs to be brought under control.
• Even if this requires an independent and
  transparent audit
• It is clear that Eskom needs build program
  financing in addition to the Government loan it
  has already obtained.
• This application does not define the extent of
  this additional financing requirement, estimated
  at some R27 billion.
• The EIUG has a concern that this aspect will,
  like the increase, surface late in the day and
  lead to a further down rating and exert yet more
  pressure on the South African economy/Treasury

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The Issues

• The EIUG whose members are amongst the leading
  job providers and creators of employment in the
  country have not been extensively consulted as to
  the effects of retrospective tariff hikes of this
  nature on their operations.
• Industry is still mindful of the activities of
  2008 and is aware that GDP losses sustained at
  that time will be repeated if Eskom is not
  adequately regulated.
• It has become clear to Industry that in the
  absence of a long term indicative price curve
  from Eskom or Nersa that Industry will have to
  provide its own curve.

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The EIUG recommends that

• Future increases should be implemented on July 1
  for supplies to both municipal and other
  customers.
• Eskom must submit their price application by 1
  February of each year.
• Eskom are to be given no leeway and if the
  application is not submitted on the required date
  the price increase is held over till the next
  year.
• No exception should be allowed as it is the
  relaxation of this process which has aggravated
  the situation.
•  

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ENERGY INTENSIVE USERS GROUP
Thanks for your Attention