National Energy Regulator of South Africa's (Nersa) electricity tariff announcement
24 Feb 2010
Minister of Energy, Dipuo Peters, made a statement about the National Energy Regulator of South Africa's (Nersa) electricity tariff determination (see briefing below). This was followed by a question and answer session with the media.
Panel: Themba Maseko, Government Spokesperson, Dipuo Peters, Minister of Energy, Collins Chabane, Minister in the Presidency
Question and answers
Journalist: Two questions regarding the funding [of electricity provision]. Is Government prepared, have they been in discussion with Treasury to give more assistance to Eskom to help fund the bill? The question of privatisation, some energy analysts have said that Government is considering giving an entire stake at one of the new power stations, let’s say the Kusile or Madupi power station, selling it in its entirety to the private sector. Can you give us an update on what’s happening there?
Journalist: Minister, what would Government have liked to see in terms of increasing? In terms of your own wish list?
Journalist: You say that Eskom initially started by requesting a 146% increase - that is actually new to me, when did that happen and what happened to that request. Secondly you say the domestic sector shouldn’t expect any increase above 15% while the average tariff will rise about 25% over the MYPD2 [Multi-Year Price Determination 2010/11 to 2012/13] that is not the case for the domestic users because the increase will be below that. As I understood what happened there is going to be an increase of 25% for everybody each year for the next three years? That is more than 25% over the period.
Journalist: Eskom last year said they face R30 billion funding shortfall should they be granted the 35% increase to carry on all their infrastructure projects. How do you propose addressing that matter in dealing with the short fall?
Journalist: I want to know whether commercial farmers will receive any help from Government to cushion them from these high increases because most of them buy their electricity from Eskom and obviously these increases will go through to consumers and it will have an effect on food production and food prices.
Journalist: You say the private sector should be leveraged to also invest in the energy sector. How do you propose to do that?
Minister Dipuo Peters: The first question is related to the role of National Treasury giving guarantees. We have an inter-ministerial- committee (IMC) in which Energy, Public Enterprises as well as National Treasury are full members and that is the committee dealing with the particular issues in relation to the additional guarantees that might be needed in relation to the areas that’s going to be a shortfall in this particular situation. I believe if you go into the next question it will be able to address the issue related to the first question. I want to indicate that the Department of Public Enterprises will very soon give an indication about the impact of the tariff increase on Eskom. The department has already put out a request for interest for the 30% stake they want to solicit for Kusile and we will very soon be getting an outcome from that process.
What would Government want to see as an ideal tariff? I want to indicate that the issue related to the 146%, I want to say with the engagement of Eskom and the Department of Energy they indicated to us for them to be able to make it possible that they can conclude on their programme that would be an ideal percentage that they would want to receive from the tariff. We engaged them extensively as the two Departments together with National Treasury to be able to indicate to them the impact of 146% on the economy but generally also on society. That is why they came up with an initial application that indicated they would request for 45% as a smoothened out approach to the tariff. But still that indicated that at the end of the MYPD2 they would still have a shortfall. At this particular moment as Government we have not concluded our process of discussing a proper and finalised funding model for Eskom and we can’t comment on an ideal particular type of tariff at this particular moment.
The issue of the commercial farmers to be cushioned, like I have indicated earlier on, we have this process of the IMC which is also dealing with the IRP, the funding model and other matters related to the security of electricity supply in the country but also including the diversification of energy sources. Within that we have a working group that is dealing in particular with matters on how to make it possible that we can then develop a system in which we can fund Eskom adequately as a public utility but also encourage the development of independent power producers (IPPs) while at the same time being able to make sure South Africans have secure electricity supplies.
The issue of the commercial farmers also is located within the working group that is dealing with the engagement of intensive energy users. So it would be during that process that we would be able to deal with those farmers together with the Department of Agriculture and Forestry and Fisheries to be able to look at a particular type of tariff that would be able to address the challenges of the commercial farmers. I want to indicate within the working groups we have established we have also a working group that is dealing with how to make it possible that we can cushion the poor from the impact of the rising tariffs.
So long as we invest in infrastructure to support electricity generation and transmission we would generally need quite substantial amounts of capital to be able to invest as Government. So we are looking at alternative sources but also saying how we ensure that the poorest of the poor and household consumers are not going to be burdened by the rising tariffs.
You would know we have a policy of at least 30% of power generation being produced by private partners. We see this as an opportunity to make it possible that we can encourage private partner participation in electricity generation. We indicate here that coal generation is one of the areas that we will be investigating not investigating that is actually indicating that there is available 400 megawatts of electricity from the paper, sugar industry as well as the petrol chemical industries. We believe that we could actually be able to bring on board that particular electricity from these industries so as to support the grid from Eskom. Thank you.
Journalist: I didn’t get an answer to my question on 25%. You say it should be less for the domestic. The domestic should not experience any increase above 15% while the average tariff will rise about 25% over MYPD2. This is not the case for domestic users because the increase will be below that, how does that happen and what happened to the idea that it’s going up by 25% a year for three years anyway?
Journalist: Is there a deadline for putting in place of a revised policy for free basic electricity or other ways of cushioning the poor?
Journalist: On the question of ideal tariff, when this was still being discussed Government was very firm on what will be too high and now you are saying you haven’t really discussed that yet. So this figure that we are ending up now, I mean surely you must have a feel if it’s still too high or too low because it’s a positive spin you are putting on the tariff rise now compared to a couple of months ago. To say that we have had cheap electricity forever and now we are on par with the rest of the world. I mean South Africa is not really on par with a lot of other countries in the world. Also with this funding model, it's probably about two years that this model has been discussed, surely we should get some answers now, and it’s about the right time for that.
Journalist: You say domestic users should not expect any increases of above 15%? I don’t get where that figure comes from and how you can say if it’s a municipal function to a very large extent. I mean this sphere of Government that deals with this is surely not specifically you and if it is, why don’t you just tell them what it should be. What we need to do is tell the public what is going on and arising from your reply, I think we can’t. Also on the same issue basically, commercial farmers, the point that Liezel was making is that if you were a commercial farmer, Minister of Energy. What would you be doing right now, how would you plan if this is up in the air being discussed by some working group in which you have no impact between Agriculture, Public Enterprises, yourself or whoever. We need to tell those readers that are farmers what is going to happen to their electricity tariffs and we can’t on this information. My other question is are we seeing very slowly some sort of privatisation of electricity supply and have you discussed it with the other members of the ruling alliance?
Journalist: Minister on a point of clarity, does it mean the commercial farmers will receive help or not? Or will that decision come at a later stage?
Journalist: COSATU and some other unions reacted quite angrily about the raise yesterday and they have threatened to take to the streets and Vavi has also called for the restructuring of the National Energy Regulator (Nersa). Has Cabinet considered this and are there ways that Government would engage the unions in order to explain why this rise is beneficial?
Journalist: When do you expect to release your proposals for encouraging greater efficiency, particular punitive tariffs to be imposed on people using above a certain quantum of electricity?
Journalist: A point of clarity, is the inter-ministerial team looking at further guarantees to Eskom?
Minister Dipuo Peters: The issue related to the 25% and the 15% that I referred to in the statement, we all consider the statement that Nersa has on their website (http://www.nersa.org.za) in relation to the municipal increases which indicates 15.3% is approved for implementation with effect from the 1st of July 2010 which [is] followed by 16.3% from 1st July 2011 and another 16.3% from 1st July 2012. For those municipal distributors who implemented a different tariff increase in the last round when Nersa gave the 31%, the regulator will consider applications on a case by case basis.
The issue of free basic electricity, we have made an appeal as a Department of Energy based on the study that was done about the electricity utilisation by the poorest of the poor an indication from Eskom itself that 50kw hours per month is a bit low for the low income or the poorest of the poor. There is a recommendation that we are doing as part of the package that we would be presenting when we deal with the funding model that would be able to speak to whether we increase what we do with free basic electricity. Government’s policy on free basic electricity to the poorest of the poor still stands and that is why we encourage our communities, especially those in areas where you find people are still not connected, to make it possible that they register with their municipalities as indigents. It’s only when they are registered that it can be determined if they qualify for the free basic electricity.
The issue related to the privatisation of the electricity sector, I just wanted to indicate that the policy of about 30% participation for private or the independent power producers was taken four years ago and we are starting to implement that to make it possible that we can then address the impact of Eskom’s build program on Eskom itself. So the final discussion about whether it’s being privatised or not and all those things will be something for a debate at a later stage.
The issue of the farmers, whether they will be subsidised, I indicated that the President was very clear when he gave us the mandate as the Ministers responsible for both the economy as well as those responsible for the energy sector to say that we need to come up with a plan that is going to be sustainable. That is why we developed that Inter-Ministerial Committee with all the working groups. The working groups have started working and they are going to be presenting their different models and different suggestions to the team that is led by Energy and DPE in which we have the Minister responsible for National Planning Commission, the Minister of Finance as well as the Minister responsible for Economic Development. So as to make it possible that all factors are considered we are also saying that whilst we are busy with this process in developing our integrated resource plan, we are going to consider the inputs that will be made by the intensive energy users and agriculture is one of those. If we arrive at the stage where there are recommendations related to particular subsidies we would then be able to make that presentation to Cabinet and based on the available resources there would be a particular position that emanates from there. We should wait for that process to run that course and then deal with the recommendations that would come from the working groups.
Minister Dipuo Peters: There was a question about punitive measures for excessive users. The inclining block tariff in itself I would say is a particular structure that would punish those who use electricity excessively. The more you use the more you will pay, and that is why we are calling on people to become more and more energy efficient. If you don’t use electricity why would you be having your heaters running? Why would you have your pool pumps? Those who have pools, pool pumps running throughout winter when you are not even swimming! Why would you keep your air-conditioning on throughout the day and night when you are not even in the house? Those are type of things that are simple but teach us to start using electricity in a different way. We are also saying that as Government we want to make sure that people can reduce the amount of electricity they use in heating water and that is why the solar water heating framework that we have developed and the massive programme that we are talking about with the solar water heating systems that we want people to introduce and to buy into.
The Minister for Evaluation and Monitoring in his statement about Cabinet did indicate that we are giving the preliminary report about what we are saying about the outcome of the determination. There is a process that I indicated that Treasury together with Energy and DPE will be engaged to determine the issue of the guarantees. I am sorry for missing out on that one.
Minister Collins Chabane: As all would know that South Africa has got a very elaborate systems of making decisions especially decisions where a variety of ideas and stakeholder opinion need to be considered. Amongst those is the determination of the electricity tariff as you would know its not Eskom or Government who decide but Nersa who is an institution given the responsibility to determine the electricity tariff after having taken into account all the issues which may be brought forward. In that context anybody who wants to deal with electricity will have to make an application to Nersa. The next process is that there is a public participation process where everybody has a chance to make their point to motivate as to why a decision should be made in their favour or in this direction. We have been going through that process for a number of months now since Eskom made its intention to apply to Nersa, so everybody has made their point. Nersa ultimately had to make a decision taking into account all the inputs which have been made and you would know that who make the presentations represent various constituencies, business, labour, communities, non-governmental organisations (NGOs) and so on. So a decision like the one taken by Nersa, if it results in an increase, there are people or constituencies who might not be happy about it and I think they have the right to do so and we need to respect that. Secondly that they represent constituencies, those who represent poor constituencies like unions for example or civic organisations, they will represent the poor constituencies who will receive the greatest impact of any increase anyhow. But on the other hand as the Minister has said you have to contend with the fact that we have to increase out capacity to generate more electricity and maintain the system as the economy grows and you need to find the resource from somewhere. And if you accept that Eskom is s State utility and the State gets its revenue from the public whichever way you go in one way or the other, if you have to raise the money to compensate for Eskom’s investments you will have to find that money from the public either through taxes or through increase and tariffs, so we are caught up in that problem. Therefore we don’t see a problem with civil society or labour or anybody raising an issue that this increase is going to affect the poor. They have the right to do so, it’s how they view it and in most cases it may be real, but we are faced with a real situation. We hope that in the context of the implementation of the tariffs and how we move forward and solve our energy problems, there will be more dynamic contact and engagement between all stakeholders, both labour, business by the relevant departments or the relevant institutions which are supposed to make requests and who are supposed to engage those stakeholders for discussing the issues which are on the table. So we expect that if there is a need, I think there will be discussions with the unions by those institutions, not only with the unions, business also.
The issue of farmers have been raised - a lot of people are going to be impacted differently but all of them in most cases will say the increases is too high and therefore we need to find the mitigating factors to do that, but as I said those are the issues which I think the relevant stakeholders and departments will deal with as they move forward.
Journalist: Was there anything said on the lifestyle audits that the opposition parties are asking for? Anything more that was brought up or could it be something that will be revived in discussions at least? Minister of Energy, when will the solar water heaters be issued?
Journalist: When we go to the Cites meeting in Qatar are we going to be making any suggestions as to the change in the current situation especially on elephant hunting? The world has too little elephants but parts of our country has too many. Are we going to put forward anything proactive? The National Students Financial Aid Scheme (NSFAS) Report to the Minister of Higher Education, when this will be available in its current form, are you going to release it at all?
Journalist: Reports out of New York I think it was the day before yesterday about an arms shipment bound for North Korea seized by our Navy I suppose. Was that discussed and can you give us more detail around that?
Journalist: I wanted to know about the Black Authorities Act repeal Bill, has Black Authorities Act of 1951 become a dead letter or is it still in operation in its shape, form or otherwise and what has its effect been recently?
Journalist: I don’t know whether the question of the alleged involvement of the South African Revenue Service (SARS) in undertaking lifestyle audits of a list of politicians as the ANC Youth League is alleging, whether there has been some security breach and whether Cabinet has discussed that and what is its view?
Journalist: You say that President Zuma joined other African leaders in condemning the coup in Niger, will South Africa therefore recognise the regime in Niger or not?
Minister Collins Chabane: Let me deal with two questions at the same time, the lifestyle audit and the SARS or the alleged SARS list. The agenda for Cabinet is set different so that was not an agenda item for Cabinet. If there’s any issue that arise the various departments or institutions that have the responsibility to deal with those issues, they will deal with the matters themselves.
With regard to the issue of Cites you would know that South Africa is a major player on environmental issues and particular when it comes to endangered species. South Africa is one of the countries which take its responsibility very serious the debate around the reduction of the elephant population as you say it’s a controversial issue it will always be on the table. In South Africa at some point expressed an opinion that we think we have got a higher population of elephants there’s a debate as to what is the relative number you would need to keep but I’m not sure what would be the details of this discussions. With regard to the report on higher education, once the Minister has the report they should be able to release it, it’s a report doing a review on the funding model and the funding for higher education the funds that the State bring forward to subsidise students who can’t afford to go to university or other institutions and making recommendations on what needs to be done going forward. So I think the Minister should be able to provide the details on that, I don’t think it’s a report that the Department will not be willing to share with the public.
With regard to the arms seizure, Cabinet have not discussed the seizure of arms either as an agenda item or bringing it as a form of notice to Cabinet, but the institutions who have been dealing with, they are in charge of the situation.
With regard to the recognition of the Niger Government as constituted after the coup, obviously you know South Africa is a signatory of a number of international instruments but central to this one is the commitment of South Africa with regard to the protocol of the African Union (AU) and the Southern African Development Community (SADC) with regard to the change of Government by non-democratic means, especially by military means. South Africa wishes that the incident which happened which led to the change of Government, they should speed up the return to civilian government but as a form of recognition as you know South Africa don’t recognise governments which came through military coup and the AU is very strong on that. The AU is also looking at the matter to see how they resolve the issue around that.
Journalist: Will you therefore send the Niger ambassador back?
Minister Collins Chabane: That decision has not been taken so I think the Department of International Relations would regard the protocols because it’s not the first time that a coup takes place in Africa since 1994. Obviously there would be protocols which are in place to deal with issues like those, so the Department will handle those matters.
Themba Maseko: The question about the Black Authorities Act, basically it’s one of the few remaining pieces of legislation in our books - it was a piece of law that was created to manage the affairs of black people during apartheid. Obviously it has become redundant so this piece of legislation basically seeks to remove it from our books. Well the cleanup of apartheid legislation is an ongoing process so as you put your legislation in order you do realise that there is still a piece of law that is still there but the fact of the matter is that the cleanup operation will take place over a long period of time.
Journalist: The previous bit of legislation which I can’t recall the name of but which dated from 1928 was repealed in Parliament two or three years. But it was done so sloppy that at this stage Parliament annually has to sort of extend that bit of legislation, have we done our homework a bit better this time around so that such an embarrassment is not visited upon us again?
Themba Maseko: Government always does its homework in repealing legislation and I can assure you it has been done this time around. So rest assured we also talked about the law review by the Judicial Commission so this is ongoing work. It is important work but you could also end up creating gaps that are not necessarily in legislation. So you have to make sure you do it properly. So, that’s what happening. Let’s not forget we agreed to go back to the energy question in closing now.
Journalist: I am not sure if my memory serves me correctly but I thought the 30% privatisation applied to generation and not also to transmission and will it be extended to distribution as well? And given the creepy privatisation if we can call it that how will we prevent in future interest of the ANC through Chancellor House in power projects and do you think it appropriate at all for the ruling party to have interest in privatised power?
Journalist: I am still wrestling with this paragraph, you say we shouldn’t get an increase above 15% but your average works out slightly above 15-16% thereabout. But you average tariff you say will rise by about 25% so someone in there is paying well over 25% for their electricity. If the rest of us is only paying 15% then someone is paying more than 25% if the average is going to be 25%, it has to be mathematically, who is paying more than 25%?
Journalist: Someone has to pay more if everybody else is paying less, will that someone be the farming community in this country and if you are a farmer does this mean that you have to wait for that committee that you were talking about to reach its conclusion? What do they do in the interim practically understanding full well that this is a long process? What do they do once these decisions by Nersa go into effect?
Minister Dipuo Peters: Eskom will definitely be engaging with the different industrial role-players or customers, they are called key customers of Eskom, in relation to the issue of the tariff and they buy directly from Eskom so they need, and you would remember that there was a discussion about engagement of Eskom with the different industry role-players in relation to the tariff long even before the revised 35% was initiated, that process is still ongoing.
The farmers are equally industrial role player that are intensive energy users and they are engaging also with Eskom at that level and I would believe that Eskom would be able to respond to that particular question adequately. The issue you raised about the 30% generation, you are right it is 30% generation because the transmission, the grid, belongs to Eskom. If I had insinuated that I think I made a mistake so it’s 30% power generation not transmission.
The interest of African National Congress (ANC) in privatised power, I just want to indicate I haven’t applied my mind to that particular issue but I would believe at a later stage I could respond to it.
The issue of the solar water heaters, I just want to indicate that we will soon as a Department advertise for the registration of suppliers and also to indicate that you would remember that solar water heating system, Eskom had a subsidy system that didn’t generate the desired outcome because of the costs of the units themselves and in line with the Industrial Policy Action Plan (IPAP) which the Department of Trade and Industry under Minister Rob Davies is driving has identified the local manufacturing of solar water heating systems as one of the key areas of intervention for job creation but also to grow jobs locally and make sure there is local manufacturing in that regard. We are going to be launching publicly so we have been having connections to solar water heating by households and different industry. Early next year the Department of Trade and Industry would be releasing regulations for the hospitality to revert to solar water heating in particular for the hotels and all those others that are intensive water users. But also we want to make sure that by the end of the year we would have connected through this system more than 50 000 and we believe going forward we would have ensured that there is local manufacturing and would be able to massify the roll-out because as we speak the challenge has been the different price structures with the imported units from different parts of the country. We are working together with the South African Bureau of Standards to make sure that the units that are being imported are not of low quality, they must have a ten year guarantee for each one to be able to install on a household in South Africa. So we are busy with that process but I wanted to indicate that we are also engaging with the insurance industry so that those who have water geysers, if they cease or damage, we revert to solar water heating. So it’s one of the areas of intervention that we believe would help us with the roll-out.
25 February 2010
Yesterday Nersa announced their decision on the electricity tariff for the period 2010 to 2013. This is generally referred to as the MYDP2 period, the average increase was announced as an about 25 percent which is 24.8 percent per annum over the MYPD2. The Department of Energy has considered the Nersa determination and would like to respond in the following manner.
From the outset I must reaffirm that we respect the independence of Nersa as an economic regulator for electricity, piped gas and petroleum pipelines. In arriving at their decision Nersa has eliminated the uncertainty of the past few months since the Eskom application was submitted.
We were informed that it was a difficult decision to arrive at given the political, social and economic implications of their decision. I wish to take this opportunity to thank both the old and incumbent Nersa board members and their support staff for the hard work that has gone into this process.
Eskom initially started by requesting 146 percent increase, after engagement with the various stakeholders this figure went down by 45 percent, this is an indication of an effort that has gone into minimising the increase.
Regarding the Nersa decision itself, I wish to put it into perspective in relation to our policies. My department has a responsibility to ensure energy security given the critical role played by energy generally and electricity in particular in our economy. Without energy security we cannot achieve the levels of economic activity that are necessary to create new jobs.
It has been almost 20 years since we commissioned the last base load power station as a country and our electricity supply demand balance remains precarious as we enter 2010.
The need for new capital investment in the sector is beyond debate, and inevitably this exerts upward pressure on tariffs. A sustainable electricity sector must be accompanied by an economically efficient tariff regime. Our wholesale tariff is well renowned for being below an economically sustainable level leading to an economy that is wasteful and not energy savvy.
Whilst this has been a key aspect of our industrial policy in the past we need to ensure that we efficiently recover the cost related to providing power to the sector that is largely responsible for driving the demand.
The time has now come to consider energy intensity in the relative context of the jobs that we can create in comparison to other less energy intensive industries.
The days of a country with the lowest price and abundant power that we took for granted are behind us. As the tariffs rise we must also not forget the social economic reality. We are not callas to the plight of the poor and we have a responsibility to cushion them from the adverse impact of increase energy costs.
We know that Nersa’s decision is aligned with our policy objective of protecting the vulnerable in our society by providing an inclining block tariff structure for municipalities and also capping the increase for this sector. For example if you use more than 600 units per month then you are liable to pay a higher charge as a domestic user.
In order to provide for the subsidy for lower income domestic customers as required by the electricity pricing policy, Nersa’s determination suggests implementation of a residential inclining block rate tariff concurrently with this price increase. The structure of the inclining block tariffs together with the average cents per kilowatt and percentage price increases.
We implore municipalities to keep the increases for the domestic sector in alignment with the Nersa determination. The domestic sector should not experience any increase above 15 percent, whilst the average tariff will rise by about 25 percent over the MYPD2 this is not the case for domestic users because the increase will be below that.
One of our policy objectives is to diversify the energy mix away from coal. Through the introduction of renewable energy, energy efficiency and demand side options. Historically this has been very difficult to achieve given the relative cost of alternative energy sources to coal.
Rather than continue to build more coal fired power stations it has become critical to exploit the upside due to the energy efficiency interventions in the electricity sector. And the Nersa determination has given this opportunity a fresh imputes. Energy efficiency not only helps to balance the electricity supply-demand equation but can you imagine the number of new jobs we could create out of this new and improved possibility? As we speak, we have about 400 MW of electricity potential that can be harnessed from cogeneration with the likes of sugar, paper and petro chemical industries. We have traditionally discarded this waste heat, given the cheap electricity.
South Africa is one of the countries that work hard to conclude the Copenhagen Accord; we therefore have a responsibility to mitigate greenhouse gas emissions. As a developing country we cannot continue to increase greenhouse gas emissions when there are cleaner options available to us. This brings me to another policy objective that we have pronounce, the introduction of none utility generators or independent Power Producers.
Our ability to fund the capital investments necessary to keep up with a sophisticated economy like we have in South Africa is limited. We need to leverage the ability of the private sector to provide timeous capital investments alongside our national utility.
Renewable energy and the practical manifestation of our policy aspiration to generate about five percent of our electrical energy from clean sources will also get a new boost as tariffs increase; even more job opportunities will be created in this space.
One of the most exciting projects that we have initiated is the introduction of the solar water heating on a massive scale. Solar water heaters will be used to the residential sector en mass, the concern about the adverse impact of rising electricity tariffs on the poor will be counteracted by the decline in monthly electricity bills as households displace electricity and use our abundant solar resource to heat water. This is a positive that derives from the Nersa decision because the solar water heaters are funded from the tariff.
We must therefore look at the Nersa determination in the context of the possibilities that it creates rather than the negatives that could result. While steep increases in electricity tariffs are not desirable, we believe that the positives of this decision outweigh the negative.
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