South Africa: Eskom CEO’s Push For Cost-Reflective Tariffs Welcomed At Digital African Utility Week

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South Africa’s power utility company, Eskom, is moving toward cost reflective tariffs instead of leaning on tax payers to subsidise the state utility, CEO Andre de Ruyter has said.

Delivering a keynote speech at Digital Africa Utility Week and POWERGEN Africa, De Ruyter highlighted five core focus areas in his Eskom turnaround strategy.

One focus area was addressing Eskom’s income statement and pushing for cost reflective tariffs.

“So we need to continue pressurising our regulator for cost reflective tariffs,” De Ruyter told delegates. “We are of the view that it’s inappropriate for the taxpayer to subsidise the activity user. We subscribe to the user pays principle and therefore the tariffs have to be reflective of our reasonable costs. We’re not asking for a subsidy for our own inefficiencies, but only reasonable benchmark costs.”

Moderating the conversation, financial journalist Fifi Peters, added: “Definitely, the taxpayer in South Africa is quite tired of having to foot the bill for mismanagement and maladministration…”

Going in the right direction

Speaker Simon Hodson, CEO of development and investment platform Gridworks Partners, which is supported by the United Kingdom government, agreed that a shift to cost reflective tariffs is key to sustainability and investability.

“It feels like Eskom is going in the right direction,” said Hodson. “And it’s important to see that the business is being segmented into its component parts (generation, transmission and distribution). But probably most important is to see the pathway to sustainability; the reference towards cost reflective tariffs is so central to what needs to happen in the sector. This pathway to sustainability is very important because a pathway to sustainability is a pathway to investability, it makes the whole silo of activities in this space investible.”

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Eskom tariffs: Key priority

From the private sector, Lisa Pinsley, Head of Africa, Energy Infrastructure, at leading investment firm Actis, said De Ruyter’s speech was music to her ears. She agreed that low tariffs was a key priority.

“As a large private equity investor in South Africa and Africa in general, I really welcome [De Ruyter’s] plans and priorities that he discussed in his interview,” said Pinsley. “It’s music to my ears, and I look forward to the implementation.”

To date Actis has invested around $2 billion and intends to bid for South Africa’s Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), under which government aims to procure some 2000 MW of dispatchable generation capacity for operation by mid-2022.

“I also have a huge amount of respect for the IPP (Independent Power Producer) office, which [De Ruyter] mentions and their ability to procure cheap power for the country,” said Pinsley. “It really is the best in the world. South Africa is one of our favorite markets. At Actis we’ve invested in 12 of the REI PPP (Renewable Energy Independent Power Producer Procurement) projects to date with total project costs at about $2 billion. So we’re one of the big players and really look forward to doing more.”

Other speakers included Clinton Carter-Brown, Energy Centre Head at South Africa’s Council for Scientific and Industrial Research (CSIR); and Abel Didier Tella, Director General of the Association of Power Utilities of Africa (APUA).

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