South Africa’s Eskom seeks higher power tariffs as loss projection widens

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South Africa’s struggling power firm Eskom expects to make a wider 20 billion-rand ($1.5 billion) loss in the current financial year and wants steeper tariff hikes than it previously sought.

The logo of state power utility Eskom is seen outside the Koeberg nuclear power plant near Cape Town, South Africa, March 20, 2016. REUTERS/Mike Hutchings/File Photo

Eskom chief executive Phakamani Hadebe has also said the government should consider injecting extra capital into state-owned Eskom to help it cope with what he said were low electricity tariffs.

Eskom is vital to South Africa’s economy because it supplies more than 90 percent of its power but is drowning in around 420 billion rand ($31.3 billion) of debt.

South African President Cyril Ramaphosa is trying to turn around the ailing company and has said he will announce a plan to shore up its finances in the coming weeks.

Hadebe told a mining conference in Cape Town the government should consider splitting up the utility, using the term “functionally unbundling”.

Chief Financial Officer Calib Cassim said in Johannesburg the larger forecast loss would be due to higher-than-anticipated power plant maintenance costs and increased use of diesel and gas, which is typically costlier than coal for generation.

Cassim said Eskom was now requesting electricity tariff hikes of 17.1 percent in 2019/20, 15.4 percent in 2020/21 and 15.5 percent in 2021/22, steeper than a previous application for increases of 15.0 percent in each of those three years.

Eskom said the new request was based on changes to its sales forecasts and production plans, arguing that a significant amount of time had elapsed since it made its initial request.

South Africa’s energy regulator is expected to make a decision on Eskom’s tariff request in March this year.

“We are using one credit card to pay for another,” Cassim said, adding that Eskom was funding debt servicing with further borrowing.

If granted the revised tariff hikes, Eskom would still only turn a profit in 2022, Cassim said, showing the challenge facing the firm.