‘Nelson Mandela Bay no longer capable of electricity distribution’

Fix municipalities or revoke distribution licences, says business chamber.

It is getting more and more difficult to attract and retain investment in Nelson Mandela Bay because the metro is failing to distribute electricity effectively.

This was the message of the Nelson Mandela Bay Business Chamber, representing 700 members, including several large power users, during the public hearing held in Gqeberha about Eskom’s tariff application for the next three financial years.

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Eskom is applying for an increase of 36.15% next year, 11.81% in 2026/27 and 9.1% in 2027/28. If approved, its allowable revenue from tariffs will be R445 billion, R495 billion, and R536 billion in the three consecutive years.

Read:
Eskom wants 36% more out of your pocket
Eskom hopes to almost triple returns with 36% tariff increase

The countrywide hearings continue this week and next week. A new date has not yet been announced for the hearings in Durban, which were postponed last week when the venue was changed at the last minute and the new venue ended up being too small to accommodate the interested parties.

Supply ‘beyond unacceptable’

The Nelson Mandela Bay Business Chamber told the hearing in Gqeberha on 20 November that the quality of the metro’s power supply is “beyond unacceptable” and that unplanned outages were out of control. The collapse of the crucial 132KV power line on 21 August was a case in point.

According to the metro’s Facebook page, the airport, Humewood police station, and South End fire station were only reconnected two days later, and other areas were without electricity for even longer.

According to the business chamber, the municipality’s electricity function is unsustainable, and illegal connections and meter tampering will cost it R1 billion in the current financial year.

Read: Let Eskom take over, fed-up Nelson Mandela Bay chamber asks Nersa [Jun 2022]

“Nelson Mandela Bay will eventually fail to meet its obligations towards Eskom,” it warned and added that the metro does not comply with various licence conditions, including those regarding its finances, technical specifications, and other general conditions.

“There is no plan to deal with the self-destruction of Nelson Mandela Bay Metro’s electricity distribution,” it states. “Nersa does absolutely nothing. Treasury does nothing.”

‘Revoke licences’

The chamber calls on the government to “fix or revoke [the licences of] failing electricity distribution licensees”.

It emphasises that Nelson Mandela Bay is only one of several failing municipal electricity distributors.

“Many municipalities are unsustainable and out of control,” it says. They are failing the users through poor quality of supply and unlawful tariffs and their arrear debt to Eskom has escalated to a point where Eskom is compromised.

It points out that the debt plan devised by the National Treasury is failing, and in its application, Eskom projects the escalation of municipal arrear debt to exceed R187 billion by the end of the three-year tariff period.

Read:
Municipal ‘Get out of debt free’ cards left standing … [Jun 2024]
Delinquent municipalities owe Eskom R82.3bn [Aug 2024]
Government support to municipalities for Eskom debt arrears appears to be bearing fruit [Oct 2024]

“Municipal default is funded through Eskom and passed on to the electricity consumer. We see no plan to deal with the root cause of government failure,” the chamber said.

It criticised the government for allowing municipalities to default to Eskom.

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“Municipalities must be dealt with before financial default to Eskom. Government must fix or revoke failing electricity distribution licensees,” the chamber said.

“We recommend urgent intervention to rescue Nelson Mandela Bay Metro’s distribution including by Eskom, [energy regulator] Nersa, National Treasury, and electricity users.”

Eskom also to blame

The chamber also criticised Eskom for overspending on the construction of its Medupi and Kusile power stations to the tune of R200 billion.

“The project being late caused all load shedding and associated costs such as those for the use of open-cycle gas turbines (OCGT) and loss of sales.”

Read: Impact of load shedding on the local Nelson Mandela Bay economy [Mar 2023]

According to the chamber, the poor management of these projects led to Eskom’s debt position, which necessitated a government bailout of R253 billion.

Other cost items in the Eskom application that the chamber criticises include:

• R45 billion for the renewable energy projects procured in the first few rounds that included risk premiums associated with the establishment of a new industry;
• The use of open-cycle gas turbines at a 6% load factor, while it was below 1% in 2017 and 2018;
• The availability of Eskom’s generation fleet, which is assumed to be at 64%, much lower than the 78% in 2017 and 2018;
• Eskom’s retention of generation capacity, which is expensive to run and underperforms; and
• Eskom’s high operational cost despite the shrinking of its generation output.

According to the chamber, Eskom’s coal cost is out of control. “The coal burn cost in R/ton increased by 90% from 2023 to 2028, while the inflation rate over the same period is 30%.

It further criticises the subsidy other electricity users will be paying to enable Eskom to charge 12 smelters discounted tariffs in terms of trade policy, while Nersa “censor[s] disclosure of the rationale for the awarding of these Special Pricing Agreements (SPAs). “Smelters have low employment per KWh,” it points out.

Read:
Electricity subsidies: Who pays more and who pays less?
Eskom tariff structure changes: Here are the winners and losers

The Nelson Mandela Bay Business Chamber points to the R65 billion included in Eskom’s application for the carbon tax and the environmental levy and vies it as double taxation.

It makes the following recommendations:

• Catastrophic local municipalities must be fixed; it asks for a rescue plan for the Nelson Mandela Bay Metro’s electricity functions, with Eskom leading an active partnership supported by the National Treasury and electricity users;
• The cost of municipal inefficiency and default cannot be a burden to Eskom;
• Nersa to review the application to reflect efficient costs and efficient operations of Eskom in accordance with the legislative prescript that it be compensated for efficient cost plus a reasonable return on assets;
• Nersa to review applied cost escalations and lack of downsizing by Eskom; and
• The subsidy to smelters must be reviewed as it jeopardises labour-intensive medium-sized industries.

Read: Struggling municipalities must outsource power distribution – Saippa

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