Cancelling bonuses and increasing tariffs won’t fix Eskom’s problems

June 11th, 2014, Published in Articles: Energize


Eskom’s senior executives will not take their annual bonuses for the financial year 2013/14. The utility’s interim CEO, Collin Matjila, says that this decision was made as part of Eskom’s efforts to cut costs in light of the projected R225-billion revenue shortfall over the five-year period 2013 – 2018. The decision to forgo bonuses follows a statement the utility made, and published in Energize May 2014, that, in compliance with the Public Finance Management Act and the Companies Act, it would undertake an internal efficiency exercise to determine where this shortfall could be offset. The fact that the utility is seeking ways of cutting costs is indeed good news, but one wonders how much of an impact the cancellation of executive bonuses will have on the projected shortfall of R225-billion.

Considering that the utility is far from profitable and its new build programme is at least three years late, it would hardly be appropriate for the utility’s executives to have received any bonuses at all. One can’t help but wonder if the announcement regarding the bonuses was made simply to engender public sympathy prior to yet another above-inflation price hike in July.

The utility concedes that cost-cutting measures alone will not address the R225-billion shortfall and continues to call on NERSA to reconsider its decision regarding electricity tariff increases and to authorise increases which will result in cost reflective tariffs being levied on consumers. However, Lynne Brown, the newly appointed minister of public enterprises, in her speech at Eskom’s “State of the Power System” update meeting on 5 June said that the dramatic financial shortfall is compounded by three factors: NERSA’s decision to limit tariff increases to 8%, instead of Eskom’s requested increases of 16%, per annum; a reduction of revenue through lower sales of electricity; and the utility’s frequent use of its open-cycle gas turbines (OCGTs) which are expensive to run.

Surely, higher tariffs will lead to a further decrease in sales particularly as the utility regularly calls on heavy industry to cut demand by 10% during times of generation shortages, and on the public at large to “live lightly” and reduce electricity demand. In addition increased tariffs have a negative, inflationary impact on an already constrained economy. Eskom’s revenue shortfall needs to be addressed but it cannot be solved by simply demanding higher tariffs from hard-pressed consumers. Perhaps its time for Eskom to seriously rethink its model and restructure itself to become a leaner, more efficient entity for the good of the country and the future growth of its economy.

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