nersa public hearing : 3 may 2018 · the past 10 years - mypd and rca proses –above inflation...
TRANSCRIPT
NERSA PUBLIC HEARING : 3 May 2018
RCA 2014/15, 2015/16, 2016/17
NICOL JANSEN
VICE PRESIDENT : AGRI NORTHERN CAPE
Outline
1. Agri NK – who we are
2. Introduction statements
3. Economy of the Northern Cape
4. Economic realities
5. Eskom's business model
6. Fraud and corruption
7. Proposals
8. Closing remarks
Agri Northern Cape• Agri Northern Cape is a provincial affiliate off Agri SA.
• AGRI Northern Cape is a member organisation for the farmers, small scale as well as commercial, and for companies in the agricultural value chain.
• We have 3 540 fully paid members as well as 7 commodities and 9 agricultural businesses affiliated.
• Agri NK is committed to the development of agriculture in the Northern Cape Province in South Africa. We’re a non-profit organisation that is helping to develop a stable, profitable agricultural environment within the province.
• Agri Northern Cape is committed to, true to its mission, as an organization by dynamic service and credible actions to promote the welfare of its members sustainable in harmony with the environment and people in dependency of the High Hand.
Introduction Statements• Agriculture is dependent on electricity, irrigation give
stability in food production – this is so clear in drought situations.
• Cold chain – indispensable in production of fruit, vegetables, meat etc.
• Agriculture is responsible for the country's food security – can’t take Eskom crisis lightly.
• Agriculture are not ignorant towards Eskom's financial challenges.
• Agriculture must take their own financial wellbeing in consideration – very important sector.
• Highly concern about the cost of electricity, above inflation increases and the financial impact there of.
The economy of the Northern Cape
• Mostly dependant on agriculture.
• Large agricultural intensive irrigation area
• The largest labour market – irrigation
• The largest commodity in the intensive irrigation area - grains
• Yellow maize and wheat - main crops.
YELLOW MAIZE Feb. 2008 – Junie 2018
Source : OVK
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
GEELMIELIES ('08 - '18)
Yellow maize
Yellow Maize
• The price of yellow maize has dropped to the same levels as 2008
Electricity
• Electricity costs increased with 348 % in the same period, R 0.25 Kw/h (2008) to R 1.12 Kw/h (2018)
• An average of 34.8 % per year.
• The price of electricity doubled every 3.5 years on average
Energy Increase 2008/18Koste/eenheid % Verhoging Verhoging Nuwe tarief
Jaar 1 2008/09
R 0.25 27.5% R 0.07 R 0.32
Jaar 2 2009/10
R 0.32 31.3% R 0.10 R 0.42
MYPD2 Jaar 1 2010/11
R 0.42 24.8% R 0.10 R 0.52
Jaar 2 2011/12
R 0.52 25.8% R 0.13 R 0.65
Jaar 3 2012/13
RCA 2015/16 R 0.65 16.0% R 0.10 R 0.76
MYPD3 Jaar 1 2013/14
RCA 2016/17 R 0.76 8.0% R 0.06 R 0.82
Jaar 2 2014/15
R 0.82 8.0% R 0.07 R 0.88
Jaar 3 2015/16
RCA R 0.88 12.7% R 0.07 R 0.95
Jaar 4 2016/17
RCA R11,2 Bilj R 0.95 9.4% R 0.09 R 1.04
Jaar 5 2017/18
R 1.04 2.2% R 0.02 R 1.07
One Year Jaar 1 2018/19
R 1.07 5.23% R 0.06 R 1.12
WHEAT Feb. 2008 – Saffex Mrt 18
Source : OVK
0
1000
2000
3000
4000
5000
6000
01
/02
/20
08
02
/26
/20
08
04
/23
/20
08
06
/20
/20
08
08
/14
/20
08
10
/22
/20
08
12
/17
/20
08
02
/16
/20
09
04
/15
/20
09
06
/15
/20
09
08
/11
/20
09
10
/06
/20
09
11
/30
/20
09
01
/27
/20
10
03
/25
/20
10
05
/26
/20
10
07
/21
/20
10
09
/15
/20
10
11
/10
/20
10
01
/06
/20
11
03
/02
/20
11
05
/03
/20
11
06
/29
/20
11
08
/24
/20
11
10
/18
/20
11
12
/12
/20
11
02
/09
/20
12
04
/05
/20
12
06
/05
/20
12
07
/30
/20
12
09
/25
/20
12
11
/19
/20
12
01
/17
/20
13
03
/13
/20
13
05
/13
/20
13
07
/08
/20
13
09
/02
/20
13
10
/28
/20
13
12
/23
/20
13
02
/19
/20
14
04
/16
/20
14
06
/18
/20
14
08
/12
/20
14
10
/07
/20
14
12
/01
/20
14
01
/29
/20
15
03
/25
/20
15
05
/25
/20
15
07
/20
/20
15
09
/14
/20
15
11
/09
/20
15
01
/06
/20
16
Wheat
Wheat Saffex Price• Jan 2008 R3 000 till Des 2018 R3 900
• An average increase of 30 % from Jan 2008 to Des 2018, 11 Years
• An average increase of 2.7 % per year
Electricity• Electricity in 2008/9 - R0.25 Kw/h, 2018 - R1.12
• Electricity costs increased with 348 % in the same period
• An average of 34,8 % per year.
Economic Realities
• Fluctuations in commodity prices due to international price tendencies as well as weather influences like draught.
• Through globalization, commodity prizes are formed internationally.
• Local farmer must compete on the international market.
• Highly subsidized products of European countries make us compete unequally.
Economic Realities
• Agriculture are price takers - can't forward the increase of inset costs to the consumer.
• Prices can move under the level of production costs.
• The effect hereof - agricultural sector can not service the higher electricity costs.
• Pressure on food security in South Africa.
Conclusion• Agricultural sector will be severely strained by further
increases. • The pressure on economics of cash crops - lead to shift
to perennial crops like Pecan Nuts. • The Lower Orange River produce mainly for export
market, table grapes, wines, raisins, pecan nuts.• Also lead to a decrease in permanent labour and the
production of grains.
• Cost of energy is a contributing factor for the change in the composition of the food basket of SA.
• Produce more for the export market, less for local market – constrain food security
The scenario around EskomBusiness model
1. The past 10 years - MYPD and RCA proses – Above inflation increases - 348% 10 years – 35% per year
2. No change in business model – no outlook for inflation related increases for next 10 years
3. No long term solution – proper planning, business as usual4. Improved technology used by the consumer as power source –
more difficult for Eskom to compete cost effective5. The problem is worsening6. Some consumers have alternatives via technology, especially
within municipalities (Use Eskom as standby)
Eskom need to change strategy1. Leaner meaner Eskom:
• Get rid of assets that is not cost effective (Garage sale)
• Close down old generation plants that is due life span date
• Run more cost effective newer generation plants on full capacity
• Cut personnel costs on the right places
2. Advertise and promote energy sales:
• Example Gas – Load shedding and tariff hikes
3. Ever increasing tariffs hike will catch up with Eskom business plan:
• Can't keep on ignoring free market principles, demand and supply versus
price
• Rely on monopoly, legal protection, rules and regulations – It is not
sustainable
4. Its not clear what happened with Eskom's profit of plus minus R5 bilj. per
year for 3 years in review of this RCA application. The idea of R5 bilj.
profit plus RCA application of R66,6 bilj. Over 3 years, R 23 bilj per year
Total of R 28 bilj. Profit per year make no sense in struggling economy.
5. Fix cost is not cost reflecting – no increase any more on fix cost, only energy
cost, Eskom/NERSA will be challenge in this regard.
Fraud, corruption, wasteful expenditure
1. Welcome measures been taken to combat crime, regain
losses.
2. Keep NERSA responsible to ensure that only prudently
expenditure find its way to the RCA application.
3. The 3 years in review matches the timeframe of advocate
THULI MADONSELA state capturing report (Public Protector
Report) within Eskom.
4. Eskom needs to clean his house thoroughly of corruption.
5. NERSA needs to keep his hands clean to stay trustful as
regulator.
ProposalsExternal
•Broader approach to the problem, inter-departmental approach
1.Regain foreign investors trust, get smelters back, large energy consumers.
2.Industrial friendly environment for investors
3.Economic growth (Reserve bank)
4.Safety and security, Political stability
5.Fiscal policy, money management6. Proper governance (Municipalities.)7. DOE (Nuclear)
Proposals• Internal - Eskom
1. Proper management, solid business decisions.
2. Leaner and meaner Eskom, cost effective, better business model for the future.
3. More affordable personnel top structure.
4. Better marketing approach to sell more energy.
5. Granted RCA revenue must be calculated only on energy usage, not fix costs, not cost reflecting.
6. Granted RCA revenue 2018 must be earned over 3 years.
7. Regain the trust of the users of electricity, don't force them to alternative energy solutions, legal or illegal. Managing that will cost even more!!!!!!!
Closing remarks1. Eskom, be aware of your market place.
The economy is unforgiving for those who have to rely on economic principles (free market economy) – these guys have to pay the electricity bills. Those who loose everything when income don’t met expenses. Fragile environment.
2. Eskom use the consumer to bail out it's bad retail revenue by increase tariffs. Will Eskom repay the consumer in terms of lowering tariffs when the opposite happens? When the economy grows and sales go up and Eskom shows profit margins due to better retail revenue, will Eskom lower the tariffs or will they just cash in on the profits?
3. Who is the watchdog for the consumer?
