Friday, May 29, 2009


Just when you think you've dealt with one problem, another pops up. Let's see, property prices gone through the floor. Massive job losses. High prices. High interest rates. Strike action. Recession. Ah yes, more good news, now the possibility of a NINETY percent price increase in electricity prices . . . which, in turn leads to more price increases down the chain, more job losses and so forth.

Eskom has become South Africa's foremost example of how to take a decently organised, functional pre-1994 parastatal and turn it to crap pile inside 15 years. Mmm, wait, there's also SAA... And hundreds of bankrupt councils, hospitals, schools, roads.. Hey! Does anything work in the New! Improved! South Africa™?

Eskom Holdings Ltd., South Africa’s state power company, may need to raise prices 90 percent to fund expansion plans, according to a regulatory official, increasing costs for business as the nation seeks to shake off a recession.

At this stage I don’t know any other source other than the tariffs, Thembani Bukula, a member of the National Energy Regulator of South Africa, told a Johannesburg conference today.

Eskom needs to spend 87 billion rand ($11 billion) in the year ending March 31, and 118 billion rand in the two years after that, as part of a five-year expansion, he said. Another option is to curb the program, originally aimed at preventing a repeat of 2008’s rolling blackouts and mine closures, he added. Eskom has asked for an interim 34 percent tariff increase.

The company, which generates 60 percent of the power used in Africa and 95 percent of South Africa’s supply, is building new plants, including the world’s fourth- and fifth-biggest coal-fired sites.

Prices would be expected to increase by around 90 percent or over 90 percent for 2009-10, Bukula said, and another 50 percent in the next year. Eskom’s funding options are limited by cuts in its credit rating and weak financial markets, he said.

Moody Investors Service last year reduced the utility’s foreign-currency rating by three levels to Baa2, the second- lowest investment grade.
‘Very Difficult’

Borrowing is very difficult as capital markets are tight and Eskom’s credit rating is under threat, Chief Executive Officer Jacob Maroga said at a conference on April 22.

Eskom will have to raise power prices significantly again this year to fund the expansion after increasing them 27.5 percent last year, Maroga said. The increase in 2008 helped push the nation’s inflation to a record 13.6 percent in August.

Even the company’s proposed interim price hike is one of the main upside risks to inflation, Reserve Bank Governor Tito Mboweni said in a speech in Pretoria today. Inflation slowed to an annual 8.4 percent in April, but was still above the central bank’s 3 percent to 6 percent target range.

Eskom should consider selling plants to fund its planned 385 billion-rand expansion, Westerouen van Meeteren, senior investment officer for Africa at Netherlands Development Finance Co., said at the April conference.

Inadequate power supply shut most mines in the country for five days in January last year as the national power system neared collapse. Demand has dropped since then as production of metals including ferrochrome declined amid a global recession.

Falling Into Recession

The utility has about 26 plants with total capacity of close to 40,000 megawatts. Thirteen are coal-fired and one is nuclear-powered. The biggest is the Majuba coal plant, with capacity of about 4,110 megawatts. Eskom is the world’s 11th- largest power utility in terms of generating capacity, and ninth-biggest in terms of sales, according to its Web site.

The country’s gross domestic product contracted in the first quarter, pushing Africa’s biggest economy into recession for the first time in 17 years, according to an official report released May 26. GDP fell an annualized 6.4 percent, the most since the third quarter of 1984, after declining 1.8 percent in the final quarter of 2008, Statistics South Africa said.

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