PRESENTATION TO NERSA ON
THE PROPOSED 35% TARIFF
HIKE
BY ESKOM FOR THE
PERIOD 2010/11 AND 2012/13
• MULTI YEAR PRICE DETERMINATION
1
1. INTRODUCTION
• It’s such a great honour to be standing right here giving this brief
presentation on the proposed tariff hike by Eskom on this 6th day
of the most promising year of all’ which South Africa will be
hosting the most historic occasion that we hope will leave a
legacy in the entire continent.
• I’m quite delighted to be in this Hall in this beautiful city of
Polokwane representing the ideals of the impoverished, I’m going
to speak for the poor in South Africa who could pay a heavy price
for the miscalculations by Eskom Management. I speak as a
citizen of the world standing for those whose sense of self worth,
sense of citizenship, values, confidence and optimism have been
sharply diminished because of the economic circumstances they
find themselves in.
2
CONT’
• I’m not going to focus on technical issues but
more on basic issues’ that Nersa should consider
in approving the percentage that will be both
reasonable and fair.
3
2. PURPOSE OF THE
PRESENTATION
• To formally protest against the proposed 35%
tariff hike by Eskom and to advocate for a
revised and reasonable increase that is in-line
with and considerate of the living conditions of
the majority of our people (Black and White)
across a wide continuum and still yield profit to
Eskom.
4
3. BACKGROUND
• The revised 35% tariff hike by Eskom is viewed as
plain exacerbation of the worst living conditions
(poverty) most of our people find themselves in. The
demographic trends and instability in our neighboring
countries have always signaled probable challenges
and a need for a well calculated move from Eskom
which has not been the case.
5
4. DISCUSSION
• Justice, democracy, humanity, human upliftment, liberty and
equal opportunities are amongst some of the key aspects that
necessitated one to stand trial for this course. The role of the
Regulator in this regard NERSA is highly appreciated. It remains
vital to clarify what one stands for in clear terms. I’m not
engaged in any negative protest and in any negative arguments
with anybody and I believe that I should not be so blind with
patriotism that I can’t face reality. Wrong is wrong, no-matter
how it’s said and who says it.
6
CONT’
• Let us keep the issues in their precise
perspective: We are a country that was also
amongst the hardest hit by global recession and
we are not yet out of it, furthermore its impact
will be felt for the next few years. It is basic
Economics that the supply of your products
should always respond to the demands which I
think has not been the situation at Eskom.
7
CONT’
• The kind of response (action) that Eskom Management
gave overtime was not appropriate to radically address
this challenges as a crisis’ and no-one could have
taken them seriously. As Shakespeare puts it in his
famous quote from Julius Caesar, the fault is not in our
stars Dear Brutus, but in ourselves, that’s a clear
message, we are responsible for ourselves/ our
situations. Eskom is responsible for this glitch& it
should not blame shift& penalize our poor people.
8
CONT’
• I’d be reasonable and fair in my approach to this subject. For any
organization to yield growth in these ever-changing times, here and now,
there’s got to be some adjustments, at times unpleasant ones but inclusive
in the sense of consultation particularly with recipients. It is a well known
fact that energy usage has risen far beyond expectations in the last decade
and Eskom found itself operating in a low reserve margin. The need for
additional capacity can never be disputed and it remains fundamental to
yield the organization reasonable profits to meet its operating costs to run a
viable and sustainable business and to further sustain the current business
and to create a capital expansion programme that will enable it to cater for
all users without the bad experiences we had in 2008 during load-shedding.
9
CONT’
• I would be irrational and unwise to dispute the fact that the price of
electricity has for ages not recovered the costs of supply and did not allow
for the building of reserves which could be used for the capital expansion
and other necessities. We remain the important stakeholders of energy
generated by Eskom i.e. (Eskom exists because of us and our quality of lives
have improved because of energy supplied by Eskom- we need each other)
and it will not be in the best interest of civil society, Eskom Board, organized
labour, SALGA, Municipalities and other organizations to suggest that the
best way to solve a problem is to remove its cause. That will be naïve to the
reality that to err is human’ and people shall at times make mistakes in the
course of discharging their functions.
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5. SOUTH AFRICA IN PERSPECTIVE,
CURRENT STATE OF AFFAIRS
• South Africa is a developmental state that is currently standing at 48 782
756, it was 44 819 778 in 2001 and in six years our population ascended to
47 850 700, a variance of 3 030 922 over 6 years and the question remains
one’ i.e. How vigilant and responsive has Eskom been’ in terms of
strengthening its capacity to cater for this growing population? The kind of
stakeholder engagements and moves that Eskom is pursuing, why for so
long has it been relaxed? Furthermore, South Africa remains a relatively
prosperous country compared to the rest of other African countries and
fellow Africans often find themselves with no option but to run to it as safe
haven, they feel safe here than elsewhere. Illegal immigrants in South Africa
have far exceeded those who obtained permission to settle in this country
and dependence is solely on the same energy capacity generated by Eskom.
11
CONT’
• According to STATS SA, the rate of migrants rose to
4.98% by 2008; remember in the previous years it was
increasing by around 0.59% and below. In simple
terms, STATS SA estimates that SA has less than 2
million immigrants legal and illegal whilst other
research institutions estimate the figure to be around 4
million. Supposedly, they use the same energy, is
Eskom pro-active enough to rise above this challenge,
if the answer is no, I’m afraid?
12
6. SIGNS OF ECONOMIC DISPARITIES&
INABILITY TO COPE WITH 35%
• There are millions and millions of God’s children here suffering
sometimes going hungry, what message are we relaying to those
if a 35% tariff hike is given a go-ahead? We have gone too far as
a State to revert back to our History though we can’t forget and
never will we forget’ the institutions and political structures of the
past that led to widespread income disparities and economic
marginalization. I’m not going to be particular’ in one way or the
other and be accidentally racial in my connotations’ because
according to me’ liberty and economic emancipation is for us all’
Black and White.
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6.1 Many South Africans live under
the following appalling conditions:
• they live in informal settlements/ squatter camps,
• a large portion of the society live in RDP houses, more
than 2.8 million RDP houses have as of March 2009
been built,
• municipal debts on water and sanitation across the
country whether you are a Metropolitan Municipality
or a Local Municipality continue to escalate, 50 Billion
in arrears currently.
14
CONT’
• SASSA budgets roughly R69 449 million per annum for social
assistance support in the form of Grants- serving a whopping 13
026 104 people across the country, 8.8 million of this total are on
Child Support Grants (remember in some rural villages, it’s
alleged to be a strong motivator to bearing kids, a sign of
relentless poverty frustrations but the positive signs are that it
reduces undernourishment which has been a problem for
decades),
• the cheapest house is R380 000.00 just outside the city of
Polokwane whilst the cheapest in town is above R800 000.00,
wages are still the lowest,
15
CONT’
• ordinary people can only obtain credit from Micro lenders
•
•
(Abomashonisa- Loan sharks) charging as high as 35% upwards
like Eskom,
a large sector of the population work in sectors such as Security,
Farms, they are domestic assistants, labour brokerage/
contractors have gone rampant, retail employment and decent
healthcare is the highest,
I was shattered in my recent study to learn with great sadness
that the lowest paid employee earns a minimum of R550.00 per
month, whilst other studies found people earning R388.00, under
logical circumstances, can they practically afford 35% tariff hike?
16
6.1.1 FACTS:
• We are not being oblivious and unappreciative of the free basic
electricity that Eskom offers, not at all. We know how key’
Infrastructure Investment is’ because in the long run, that on its
own will create more job opportunities and ultimately grow our
economy. Looking at the total number of electrified households
thus far, roughly 9.1 million, its commendable in a third world
country’ much has been achieved but the issue is centered on
growth of the entity itself, impact of the proposed hike on the life
of an ordinary man& woman, and sustainability.
17
CONT’
• These facts and figures signify the extent of insufficiency of
resources that most of our people live in, they live under explicit
poverty and exploitation. Should we then sit back and say people
earning these salaries will cope with 35%? No, it can’t not be
now, the stakes are too high, 35% should not be an option, not
now. The application by Eskom remains understandable
considering the crisis they are heading to’ but totally
unacceptable considering the current state of economic affairs
and the livelihood of many households.
18
CONT”
• The official unemployment rate declined from 27.9% in 2004 to
23.5% in March 2009, South Africa has witnessed massive job
losses, estimated at more than 400 000 due to the recent
economic slump and the decline in economic growth. Is Eskom
really worried that roughly 80% of those who lost jobs haven’t as
yet secured new one’s and that some Companies have
completely shut down? If you critically look at government
targets for 2014 and the overall efforts thus far, we are on the
right track though recovery is slow due to various factors such as
the growth in Real GDP which slowed to 3.1% in 2008 and was
notably lower than the annual growth rates that varied between
4.9% and 5.3% from 2004 to 2007, but there’ll be further
interruptions due to high debt levels and lower interest rates.
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7. WHAT ESKOM NEEDS BEYOND
ADEQUATE BUDGET!
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
New breakthroughs are desperately needed and we have to work
together towards shaping our future in a sustained and focused way(
Working together, we can do more).
Strong Management that will from time to time evaluate the possible fate
of the decisions they take today and their impact on tomorrow.
Successful organizations today are those which will be capable of
reading between the lines, those that will rigorously evaluate their
practices to early identify (Early warning sings) and implement turnaround strategies not reactively but as proactive measures.
20
CONT”
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



Eskom is such a large organization’ taking care of millions and millions of people
through energy supply and should be well conversant with Strategic Management
issues,
Improved (and not better- average) Management of available resources and more
accountable Management.
The kind of Management that will frequently assess its daily activities including its
Projects against its long term strategic objectives. Management that will be capable of
trying a lot of things when necessary to get one major thing to work, that is tenacity and it’s
critical to success.
It will not only be Eskom caught up in the midst if you look at the manner in which our
state owned entities are managed, SAA, Spoornet, Transnet& SABC could follow soon
if drastic steps are not employed in time.
Government intervention’ policy-wise is highly required to take part in addressing some
of these challenges, adoption of some policies.
21
8. DRAWBACKS THAT SHOULD BE
AVOIDED AT ALL COSTS
• Any job loss is one too many- our people lost too many
jobs to lose further jobs.
• Possible frustration and devastation of emerging and
smaller businesses.
• Affordability to pay other municipal services could be
badly affected
• A situation where people revert back to the traditional
methods of creating energy at the expense of mothernature where conservation is a foreign language
(Coppenhagen Accord).
22
CONT”
• A situation where the hike is abused by land-lords
who’ll unfairly exaggerate their rental prices excusing it
on increased municipal tariffs.
• A situation where Municipalities themselves will impose
electricity levies that are not regulated, remember
some Municipalities depend on electricity as main
source of income and they may be forced to narrow
down the number of those who should be subsidized
for profit reasons.
23
9. POTENTIAL CONSTITUTIONAL
VIOLATIONS
• The supreme law of this land our Constitution
will be adversely violated, directly or indirectly
particularly if specific attention is focused on
Chapter 2’ the Bill of Rights,
24
CONT”
• Sub-section 10 on Human dignity which reads that everyone has
•
inherent dignity and the right to have their dignity respected and
protected (too much exploitation reduces people’s dignity to
nothing, it casts doubts on their sense of citizenship),
and Sub-section 24 on Environment encourages an Environment
that is not harmful to their health or well being and to have the
environment protected, for the benefit of present and future
generations, through reasonable legislative and other measures
that prevent pollution and ecological degradation, promote
conservation. There will be a serious breach of many promises
which are due to be fulfilled in 2014 if 35% is endorsed.
25
10. OTHER THINGS ESKOM
SHOULD BE DOING
• Eskom should amongst other things focus on
developing sustainable programs that will stand the
test of time generating revenue that will realize its
growth.
• It must explore the development of viable energy
efficiency mechanisms and educate the nation on
them, assess over a certain period improvement/ the
effects thereof. I have seen messages broadcasted on
TV during critical programs which is a good start.
26
CONT’
• Eskom should also amongst others’ on their capacity building
plans, beyond coal-fired options look at what other countries are
doing to cope with their demands, cause there are probably
other renewable options, nuclear and solar heating systems/
energy amongst others could also be tested, the Sun itself could
be the answer to some of the challenges - Ecotechnology.
• Eskom need to be thinking investing in Engineering and Research
for the invention of improved ways beyond existing one’s of
creating sustainable energy. Research on pricing policies that will
still profit them but also protect the poor from exorbitant prices.
27
CONT’
• Intensify their battle on illegal connections
• Meter bridging
• Deliberate tempering/ manipulation on the free-flow of
electricity by some employees to enable colleagues to
work extended hrs/ overtime
• Excessive use of contractors even in instances where
Eskom itself has capable employees to do such jobs,
some companies owned by relatives of Eskom,
sometimes they are being used under selfish motives
at the expense of the entity itself
28
CONT’
> Maybe amongst other options, a whole new
tariff structure’ subsidized can be expedited’
between businesses and residential customers,
the poor of the poorest and the middle class,
price differentiation based on consumption
levels.
29
CONT’
• When I holistically assess Engineering as a discipline,
the creativities that accompany it, if Eskom has the
best cream of Engineers’ its problems can be resolved
without necessarily exploiting its clients by such a
substantial hike.
• I know of a number of Engineers who left South Africa
purely because they could not be employed and when
you trace their record of achievements in foreign
countries, i.e. UAE, USA, UK etc you’ll realize that we
have lost veterans; we need their expertise to help
rescue this entity from approaching its spiritual death.
30
CONT’
• It must further assess whether 35% tariff hike is
the most reasonable percentage it can opt for’
looking at our current circumstances? A
complete re-thinking of strategies is critical here.
31
11. FURTHER NAVIGATIONS
ON ESKOM BY NERSA
• Amongst other things Nersa should embark on’ is to expedite Eskom’s turnover per year
for the past 6 years. Demand their cost cutting measures beyond retrenchments
because there might be many obsolete systems that are still being used and which if
done away with could save the company a lot of money and bring about more returns.
• If they have expedited other areas of cutting costs, let them start there before they talk
excessive percentage terms. My point of contention still is’ what informed Eskom that
35% is the way to go beyond what they need, what criteria did they follow to arrive at
such a hefty figure in-spite of the current economic climate.
• Was any survey conducted? If so, where in particular or was it a question of saying, lets
start from 70% and then bargain from there or is it just an impulsive decision to redress
and correct their past mistakes? 35% logically is rude, I mean when we talk salary
increments, we generally talk 6-13/14% and all of a sudden, Eskom talks extreme
figures.
32
CONT”
• Most industrialists think it is not for Eskom to worry
about the poor and other sectors of our society who
are employed but earn extremely little to keep up to
the hike. I want to differ with this sentiment because
in as much as most people are poverty stricken and
are reliable clients to Eskom, it should worry Eskom to
have a large number of people opting for other options
than electricity whilst they have it in their households.
33
CONT’
• Processes for forecasting sales, details of some of the
alleged costs, alternative funding options etc. The
recent procurement of R10 billion from five French
Banks to fund two new power stations is one good
strategy to survive the calamity, it will repay overtime
but it must also compare the dealings cause in the
process it might be presenting an opportune moment
for international Banks to rip it off.
34
CONT’
• Demonstration of how it strives for efficiency- Producing more at
the lowest possible value for money, tangible and convincing cost
reduction measures in operating expenditure. What has Eskom
done so far to handle allegations that some employees would
deliberately temper with electricity particularly on weekends to
create an opportunity to work overtime? What is it doing to
educate high energy consuming sectors to minimize on their
usage (instances where high consumption machines are left
unattended)? Procurement process of service providers on some
projects at Eskom also leave many questions unanswered.
35
CONT’
• Nersa to thoroughly look at overall estimates of
Eskom, what are they based on?.
• In dealings of this kind, we as clients need
genuineness/ absolute honesty.
36
12. IS THE TIMING RIGHT?
• Absolutely no, for 35% it’s a big no. We are
coming out of recession, let me put it this way,
not yet out of it but are quite slowly departing
out of a global economic meltdown. Will the
35% tariff hike do justice to all stakeholders
during the World Cup soccer tournament? More
than 400 000 people lost their jobs, some
Companies were liquidated in the process.
37
13. CONSEQUENCES OF THE 35%
TARIFF HIKE IN BROAD TERMS
• We are putting our population under extreme pressures. People
•
find themselves surviving with very limited resources but we are
further creating an atmosphere where they have to compete and
fight for virtually minimal resources, that is creating further strain
on them. The challenges are too great and the stakes are too
high and it can’t be this time. To most of us 35% will be nothing
but exploitation of our poor households, it will have a severe
impact on customers/ us and the economy at large,
the risk of job losses still stands, it should not be 35%, not now,
not when there’s so much at stake, we’re still getting out of a
global economic meltdown.
38
CONT’
• If you critically look at the two options Eskom
proposed, the EPP (Electricity pricing policy) and the
second option, smoothing of the price increase
45/35% increase, they all favor Eskom’s recovery
tactics.
• They never considered areas beyond Eskom, i.e.
customers/ users. Why only two options, they could
have researched and maneuvered even more options
that are not only recovery driven but also suit the
needs of most stakeholders.
39
CONT’
• There have been serious blunders on the part of Eskom and
Parliament can’t be blamed because it’s for Eskom to rise up&
raise projected challenges in time- not when the house is up in
flames.
• This however’ is obviously not the best of times to play the
blame game because it won’t help us. What we need to focus on
is to develop versatile (without being stereotype) sustainable
world-class solutions that will save the sinking soul of this
organization, this is a state owned entity and we remain
important stakeholders, primary or secondary but we are
stakeholders.
40
CONT’
• Eskom says that the current average price of electricity
is approximately 33c/kWh which should actually be
corrected to 75c/kWh or 83c/ kWh, a sign of a
significant variance which absolutely can’t be corrected
overnight. This is a serious anomaly and Eskom should
get to its senses and not expect to correct this
discrepancy over a short space of time because it took
years of negligence, ignorance and lack of focus to get
things in this harms way. This will be corrected but
over-time, it took years and years to create.
41
CONT’
• Eskom is not considerate and I want to emphasize that it does
•
•
not seem to care what happens post implementation of the hike.
If that‘s truly the attitude, people will rise out in numbers and
peacefully, in a non-violent way engage in protests against this
injustice, if it means going to court, they’ll wound up in the
highest court in the land (the Constitutional Court).
Management has been on comfort zones for far too long, it could
not take appropriate steps and should we eventually suffer for
Management’s failure?
42
CONT’
• If people say well!, we still can resort to trees to make
fire, remember nature conservation’ Climate change’
and global warming? All this will be compromised.
• We know the impact of Greenhouse Gas Emissions and
the extent of damage we can’t repair through cutting
trees, Climate change – is no-more a subject to be
discussed by a literate few but a serious subject that
led to the recent Coppenhaggen Summit.
43
CONT’
• We know that Eskom is committed to access but usage
supersedes mere access because having electricity and
not putting it to use is plain wastage of scarce
resources and the master-plan behind electrification of
our households will no-longer serve its actual purpose.
• The Coppenhaggen Accord, my plea to Nersa is’ we
must be seen to be taking the global challenge
seriously and not be like many leaders who failed to
back-up the agreement and make sure it’s legally
binding.
44
CONT’
• The Grants that our Government give to most
families will be taken away’ just like that by
Eskom, let’s think of a normal family of 4/5 in
broad terms that earns roughly R1000.00/
month. Most households earn roughly that
much. It’s just morally wrong.
45
14. WHERE DO WE GO FROM
HERE?
• It is in the best interest of all stakeholders particularly the recipients of
electricity that since the hike is the most viable option; let it be in-line with
affordability levels of the majorities, i.e. the poor and the middle class and
not just a few.
• If Eskom could at least be proposing 15% for the next 3 years, then 20&
then 30, but relax their increases after 9 yrs from now, maybe our situation
would have greatly improved’ it would be fair& just. Energy is life, we can’t
do without it because doing without it will only return us back where we
were, resorting to trees to make fire, using candles for light (how many
people lost their lives due to house fires started by candles?), it is not
environmentally friendly and it is dangerous to the well being of our people
both in the short and long term. We have too many child headed
households due to HIV& Aids to allow for more’ from house fires due to use
of candles.
46
CONT’
• Cutting down too many trees will eventually destroy nature and we’ll not
survive because we live on oxygen that trees and plants breathe. Trees
further protect us from various natural disasters and they also protect
animals from extinction. Sustainable funding model and clarity on whether
Eskom is coming or going revenue-wise because sometimes you have this
large organizations which are totally not generating the revenue they should
be generating, getting into debts and more debts but revenue potential is
too narrow, if so, research on best practices and policies that will still enable
it to make genuine profit but protecting the poor simultaneously should be
conducted. Invitation of new role players with strong financial backbone
(raising equities from the private sector), pursuance of multiple options, if
people don’t approach Eskom, let it approach them. Borrowing also remains
a necessity under the circumstances than to kill people like guns.
47
CONT’
• Prioritization of key activities, not all activities that Eskom is
focusing on are equally significant in terms of costs and returns,
a decision should be made on target projects for the next e.g.
five years and full focus must be put only on such projects.
Putting some money aside to tackle other ad hoc projects and for
contingencies is still key. We need to see Eskom as a more
focused organization, knowing exactly where it wants to go’
when and how to get there, with how many resources, financially
and otherwise. Random management of projects were we hear
too many things not clear enough won’t help us if you carefully
consider the stakes at hand, they are too high.
48
CONT’
• I’m not sure as to which stakeholders are responsible for auditing Eskom
from time to time because if one considers the absoluteness of figures,
there are certain things that leave much to be desired, if one rigorously
intensify analysis of their assertions, if it’s audited by a private company
maybe it’s high time that the Auditor General as enshrined as part of the
institutions supporting Constitutional Democracy in Chapter 9 of the
Constitution should come in, if it’s the AG, reputable/ blatantly honest audit
firms should come in. Maybe the staffing patterns of Eskom can also be
looked into, as to whether some of them are really legitimate looking at its
current difficulties. I’m not sure if Scopa has powers to oversee parastatals
as in other state institutions because it will be in the best interest of the
public and transparency to bring in a neutral and no-nonsense stakeholder
like Scopa to look into their practices and books?
49
CONCLUSION
• From a distance, I have a feeling that Eskom needs
more strategic partners (Executive level) and well
groomed/ shaped Engineers, it must seriously invest in
research& development of viable energy efficiency
mechanisms (close monitoring& evaluation is still key).
Moderately subsidized tariffs for poor domestic clients,
the unemployed are more than necessary and under
the proposed tariff hike, electricity will never ever be
affordable for the poor, middle class and small
enterprises unless if Nersa rescues us.
50