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“When Eskom said to the government: ‘We think we must invest more in terms of electricity generation’...we said not now, later. We were wrong. Eskom was right. We were wrong.” - Former President Thabo Mbeki 2007
Until 2001, Eskom was not subjected to taxes, dividends or other typical commercial imperatives. Eskom did not have to bear the full economic opportunity cost of capital employed to finance its investments (incl risk).
It was able to amortise debt while maintaining artificially low electricity prices.
Since the late 1980s, Eskom’s avg tariff increases were consistently below inflation until 2003 when trend reversed. Tariffs increased from 6% to 31.3% in 2010. Tariffs declined to 8% in 2013 on concerns that high electricity prices would put pressure on constrained households.
Eskom applied for 16% tariff hikes 3x in 2013, but Nersa offered the utility 8%. The reason for the 16% request was to help Eskom reach cost-reflective levels. Lower tariffs meant that elec prices did not cover the full costs of producing electricity.
One of the key structural deficiencies of the electricity distribution industry has been excessive fragmentation. In 1999 cabinet approved a plan to merge over 300 municipal distributors and Eskom’s distribution businesses into 6 regional distribution companies.
SAs electricity system faces a tight demand/supply balance and its adequacy and reliability are therefore in jeopardy. This is evidenced by the decline in the systems reserve margin (difference between operational generation capacity and peak demand). #Eskom
Eskom’s existing fleet of power plants has an average age of about 35 years. Komati is around 55 years old. These power plants require high maintenance needs.
