Monday 3 Feb 2020
Agri Western Cape made a presentation to the National Energy Regulator (NERSA) during a public hearing in Cape Town this week on Eskom’s Regulatory Clearing Account application for 2018/19. Agri Western Cape participated in the process based on the seriousness of the matter for agricultural producers in the Western Cape.

Mr Jannie Strydom, CEO of Agri Western Cape, says the demand for electricity in the agricultural sector is basically inelastic. As a result, producers can do little to reduce the specific cost of electricity in the short term, that can account for up to 20% of direct cost.

The fact that the cost of electricity has increased above inflation over the past decade, but product prices have not increased accordingly, confirms how serious the situation is. It contributes to the cost-squeeze effect that agricultural producers find themselves in.

The time lag between Eskom applications, Nersa’s decisions and eventual Eskom activities, can lead to unforeseen risks and Agri Western Cape is not convinced that the request for a further amount of about R27 billion is necessarily correct.

There are simply too many things in the application that are unclear and that indicate – in Agri Western Cape’s opinion – that Nersa and Eskom are not on the same page. This is clear from the different views on how capital expenditure should be accounted for and the impact on cash flow; differences between approved and actual diesel consumption; variations between approved and actual energy costs (coal); unrealistic expectations with regards to the retrenchment of employees, and similar RCA applications that still haven’t been dealt with for the previous three years and have led to legal proceedings. The fact that Eskom, according to the application, can’t cover interest obligations from current income, indicates that it could not be considered as a going concern. The entity finds itself in a debt spiral, which is a serious concern.

Agri Western Cape believes Eskom’s cost structure should be made available to the public in greater detail. The role and effectiveness of Nersa should also be investigated, given aspects such as poor oversight over contracts. All RCAs must be consolidated to determine the potential impact on tariffs. The latter should be subjected to independent audits beforehand. Negotiated electricity prices for sectors such as the agricultural sector should be considered for the medium term.