FREEDOM FRONT PLUS PRESENTATION

Opposing the proposed Tariff Increases by ESKOM January 2010 at Gallagher Estate

64 % ( 35 %) 105 % ( 35 %) 172% ( 35 %) (The real increase in nett terms, after the municipal increases have been added on top of ESKOM’s proposed tariff increases.) The FF+ has identified the following systemic co-factors that brought about the current crisis in power generation and makes mendations as appropriate interventions to solve the crisis: certain recom-

1. Problems in the reduction of Generation capacity started during the De Klerk government 2. Problems in the un controlled, and non sustainable, increase In demand for electricity 8. Solutions in different types of electricity generating modules available 3. The absence of a Meta-power policy, and it’s coordination and management

RESOLUTIONS

7. Support for Solidarity ‘s proposed alternative financial model 6. The effect of the increase for different consumer groups based on ESKOM’S proposed tariff hikes 5. Problems surrounding ESKOM’S own Financial policy 4. Problems in municipalities.

Municipal billing, and credit control

Problems in the reduction of generation capacity started during the de Klerk Government

The serious demise of electricity supply to the population, to the extent of 5 000 Megawatt; under the de Klerk government, which was already paid up, and paid for by after tax money of minority consumers. De Klerk closed various power stations and retrenched its staff between 1988 and 1990, for instance, Camden, Grootvlei, Komati, Arnot and Salt River, amongst others.

RESOLUTION

The Freedom Front Plus (FF+) requests and suggests that these plants, where viable, be re-activated before payments for increased tariffs should be requested. In addition, an opportunity should be afforded to retrenched workers from the minority groupings to be employed again with ESKOM so as to bring the expertise back that existed before.

Problems in the uncontrolled, and non sustainable, increase in demand.for electricity

The uncontrolled increase in demand of electrifying 800 households a day, which in the end, contributes to the 60 – 79% of bad debts of municipalities, should be adressed by government. The unchecked influx of illegal immigrants to South Africa, which now totals between 3 – 6 millions illegal immigrants, has a huge effect on the illegal, and unmanageable increase on the demand of electricity.

South Africa’s participation in SADEC and the South African Power Pool (SAPP) with a population totalling 230 million, imposes a great increase on the demand for South African-generated electricity.

RESOLUTION

The FF+ opposes the idea of the supply of electricity to non-payers. It places a destructive burden on law-abiding minority households, when illegal usage is recovered from paying households.

Illegal immigrants place a huge strain on the electricity supply of South Africa, and also pose a major military security threat to South Africa, considering the closure of the American embassy and consulates due to a Somalian terror plot hatched in Khayelitsha. Illegal immigrants is also a major threat to the security of electricity supply to South Africans, and this threat is not considered nor managed by the government satisfactorily. Government must manage this effectively and it is incumbent upon NERSA to make government more aware of this co-factor to inadequate electricity supply in our country.

The supply of electricity to SADEC or SAPP-countries should only be done after South Africa’s internal needs have been met, and then only at cost of production plus at least 15 % for SADEC countries.

The absence of a meta-power policy, and it’s coordination and management

The absence of a meta power policy and it’s implementation and management resulted in the delay in the erection of new generating capacities since 1993, despite the fact that funds had been available. It also resulted in the Pebble Bed Modular Reactor not being built, due to endless litigation between non governmental organisations and ESKOM. It also is a fact that several departments are still awaiting the Integrated Resource Plan from the Department of Energy as we speak. It is also responsible for the fact that the 30% of private enterprise electricity suppliers, previously decided upon by the government and NERSA, has not yet materialised to the detriment of South Africa’s population .

RESOLUTIONS

Therefore, the FF+ proposes a moratorium of ESKOM’s tariffs, until such a coordinated plan is presented and accepted by South Africa.

The FF + proposes the creation of university-based research and development department, with the ability to provide all necessary information with regards to electricity in the South African context, at short notice, including new power-generating possibilities, installment, management and maintenance there off.

The FF+ proposes an immediate conference between different role-players such as ESKOM, NERSA, Department of Energy, and Earthlife Africa, to resolve ongoing litigation, currently preventing the building of new capacity regarding generation of electricity.

Problems in municipalities, municipal billing and credit control

Lack of management capabilities in all aspects.

Total lack of credit control by municipalities.

Between 60 % and 79 % of municipal debt is regarded as bad debt from the onset, and “written off”, whilst in reality, the outstanding amount gets billed to households in the following year, and also whilst the tariff charged to such households is annually increased to recover the debt owed to ESKOM non paying users; mostly from minority groups. Tariff increases by ESKOM, is also doubled by municipalities to households, resulting in this instance not in a 35% increase as proposed, but in a 70% increase to those households.

Non-existent credit control by municipalities results in a chain reaction in increased tariffs for paying households, and technical bankruptcy of municipalities, and in the end financial losses for ESKOM.

RESOLUTIONS

The FF + opposes a tariff increase by ESKOM, until such time as proper management and credit control practices are in place in all municipalities; all billing problems have been resolved; all outstanding debt have been collected; and independent forensic auditors, and a commission of enquiry have made known the full extent of prevalent problems in municipalities. NERSA must address this systemic problem with government.

The FF+ request a moratorium on tariff increases until such time as proper personnel management practices in municipalities have recruited competent municipal managers in all departments.

The FF + request a moratorium on tariff increases by ESKOM, until such time as clear policy has been established on the doubling of electricity costs by municipalities. This double-billing of households is unacceptable, and a clear practice resulting from the prevalent lack of management skills in municipalities.

The FF+ request a moratorium of tariff increases and immediate government action to correct the absence of credit control by municipalities, and the devastating outsourcing thereof to the private sector, further complicating the issue, and leading to further collection problems.

Problems surrounding ESKOM’s own financial policy

ESKOM supplies electricity to five of it’s categories of clients at a loss of R8,4 billion annually. This is indicative of serious pricing and management problems in ESKOM.

To provide electricity to private households and agriculture at twice the rate charged to other clients, is an abomination and unneccessary burden to these two cash-strapped groupings. These two groupings are already besieged by a multitude of other problems, including a world-wide recession, unemployment, restrictive credit legislation, farm murders and landgrab legislation. If the intent of EKOM is to wipe out the middle class in South Africa, it will be successful in that respect should it be given the greenlight by NERSA to its requested increases.

As far as ESKOM’s financial statements are concerned, to present financial figures, income, losses and other data, in the way it has been done by ESKOM, leaving out the effect of illegal immigrants, non-paying municipalities, the debt and percentage of each municipality, total debts of municipalities and other information required for sound financial analysis and sound financial management principles, raises serious questions on the integrity of the data, and it’s presentation.

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The unwillingness to supply information on the debt of municipalities to non-governmental organizations, is met with suspicion by the FF+ Planning and budgeting a new power station (Medupi), with an initial estimated costs of R26 billion, and then seeing this projected cost escalate to a R126 billion in only three years, indicates a serious lack of financial planning and financial budgeting skills within ESKOM.

The presentation by ESKOM of the number of households as 4 223 708, and it’s annual income derived there from as R 5 552 000 000 (R5,5 billion) is questionable. These figures depict an annual income from households as R1 314 per household. This implies a household electricity bill of R109 per month, which is rejected in totality by the FF+. This can not be as households pay in reality an average of R1500 per month, equaling R18 000 per annum, per household. Therefore, the total income earned by ESKOM seems severely understated and deserves clarification.

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Considering a guesstimate total (due to a lack of transparency and figures) of 2 million minority households, the annual income from minority households therefore equals a total of R76 billion annually, of which half as a guesstimate, goes to ESKOM, and the other half to municipalities. This serious understatement of incomes derived from households, warrants a serious investigation by a Commission of Enquiry, as well as a full investigation by an outside company of forensic auditors.

RESOLUTIONS

The FF+ opposes any tariff increase based on the above existing financial policy and reporting problems within ESKOM. The FF + proposes a resolution that immediately asks government, NERSA, and ESKOM to add a fixed cent increase to all of it’s loss making client’s billing, that will increase the annual income for ESKOM from these entities to a positive profit, above the current annual loss of R8 billion annually.

The FF+ proposes a moratorium on the increase of tariffs to private households and agriculture, based on the overcharge of these two entities in the years preceding 2010, at twice the rate of other electricity consumers.

The FF+ request an immediate new set of financial figures from ESKOM be made available, reflecting the effect of illegal immigrants, non-paying municipalities, percentage debt of each municipality, total debt of municipalities; as well as all other information needed for a serious analysis and management proposals for improving the current financial policy and management in ESKOM.

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The FF+ requests the immediate appointment of a Commission of Inquiry into Eskom's financial statements, financial management and financial planning, and with specific referral to the ANC’s involvement in the Mudipe power station, and the reasons for the resultant escalation in projected erection costs. Further should the full extent of non-paying members of municipalities and groups of non –paying people be made known as a basis for future references and sound financial planning purposes. The terms of reference must include the tendering processes followed with regards to Mudipe power station, as well as the community wind project at the Tsitsikamma Coast. This report must be made available to the public at the earliest possible date for future planning and disciplinary action or criminal proceedings, as the case may be.

The FF+ request that ESKOM immediately make available the necessary information requested by the National Union of Taxpayers, indicating the debt of municipalities.

The FF+ request the immediate involvement of a firm specializing in Cost Accountancy and Cost Management to alleviate the further escalation of projects, like the Medupi power station.

The Effect of the increase for different consumer groups based on ESKOM’s proposed tariff hikes.

There is a false sense of the security of electricity supply amongst the consumers and public. One major incident can and did affect electricity supply to South Africa. Similarly false beliefs about ‘having cheap electricity’ are rife, and exacerbated by ESKOM’s statement that “South Africans have some ot the cheapest electricity in the world”.

Paying households pay for their electricity out of after-tax, nett disposable income, already ravaged and under siege of the worldwide recession, high unemployment, and credit legislation affecting the sale of capital investments like property. It is even worse for minority groups who have to contribute despite the structural discrimination taking place by virtue of social engineering known as affirmative action and BEE.

Save for farmers, the other clients of ESKOM pay for electricity as part of their operating costs, which is tax deductible, which can also be absorbed by price hikes of their products or services, yet they pay a fee subsidized by private households and farmers!

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In addition private households pay double the ESKOM rate due to municipal charges levied on top of that of ESKOM.

The multiplier effect will also lead to an increase of almost 300 % , rather than the 105 % projected by ESKOM. Already Cape Town municipality has indicated that a tariff increase of 35% by ESKOM, will allow the municipality under the law an additional increase of approximately 29 %. This means households in Cape Town will foot a bill of increased tariffs of 64 %! This is simply unaffordable for households and will lead to large scale bankruptcy.

The way that NERSA has requested responses from all parties, suggests a certain fait accomplii in the increases requested by ESKOM.

Electricity increases since 2005, amount to almost 91 %, almost all due to the average of 60 % bad debt that municipalities regard all their debt with. In some cases like Johannesburg, the bad debt is 79 % of accounts.

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A predicted job-loss total of 500 000 may follow on the tariff hikes.

A destruction of a total of R150 billion worth of GDP may result in the wake of the tariff hikes.

The demise of the motor industry might occur.

Farmers warns of massive job losses, and profit losses.

The mining industry will be seriously affected.

RESOLUTIONS

The FF+ opposes any tariff increases by ESKOM, based on the above existing and resultant problems for consumers from ESKOM’s proposed tariff increases.

The FF+ insists that false beliefs held by the public, about the so-called cheapest electricity in the world, should immediately be rectified by a government communiqué in the newspaper, sharing the truth with taxpayers and households on the reality and truth of South Africa’s very expensive electricity.

The FF+ requests that households and farmers be exempted from tariff increases from ESKOM, based on the cumulative effect that a double increase from both ESKOM and municipalities will have on their nett disposable income, leading to increased poverty of households.

Tariff increases to ESKOM’s other clients should reflect the production costs of electricity, plus an added cost to bring all bills to a level of non-subsidies, marginal profits reflecting on their statements, which is tax deductible or subject to a level of price increases by these entities.

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The FF+ requests that the total increase in tariffs to all clients should be capped at 15% in total, from both ESKOM’s and municipal sources.

The FF+ requests a moratorium on any tariff increases for minority groups in the population, until such time, as outstanding debt owed to municipalities have been collected in full, thereby ensuring that minority groups does not get billed for the outstanding debt of 79% of the bad debt of the majority of debtors in municipalities.

The FF+ requests that GDP losses incurred by businesses as a result of tariff increases by ESKOM, be made tax deductible, and also request that some government funding be made available to assist businesses financially that find themselves in trouble.

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The FF+ requests a moratorium on retrenchments, and suggests that steps be taken like done by industries in Germany, rather resorting to shortened working hours, shortened working weeks, and cut-backs on salaries, in an effort to keep the skills in the work place.

The FF+ asks for government assistance for the motor industry, assisting them in dire circumstances brought about by the new credit act, economic recession, unemployment rate in the country, and ESKOM’s proposed tariff increases.

The FF+ requests that farmers be exempted from any tariff increases by ESKOM, in an effort to enhance the security of food supplies in South Africa, and also in an effort to contribute to change South Africa from being a nett importer of food, back to being a nett exporter of food in South Africa. Alternatively, the FF+ requests that farmers be exempted from tax for a period of three years, to offset the overcharge by ESKOM to these clients for a number of years.

Support for Solidarity’s proposed alternative financial model

The Freedom Front Plus supports the financial model proposed by the Solidarity Trade Union during the NERSA hearings.

One of the biggest criticisms agitating against ESKOM’s proposed increase in tariffs, is the economic model being used by ESKOM. The Solidarity Trade Union held a separate conference in an effort to obtain alternative economic models and financing proposals. According to Solidarity Trade Union, “Solidarity on Friday presented proposals to the National Energy Regulator of South Africa (NERSA) that indicate that ESKOM could reduce its proposed price increases by at least 15 percent to 20 percent. ESKOM can also adjust it’s loan formula, so that more money can be borrowed. ESKOM can incur more debts, and pay it off over a longer period. ESKOM’s capital expansion program is necessary, but would cost more than R500 billion in the next five years. Tariff increases can be decreased by 20 %, and ESKOM will need more money for capital expansions. ESKOM will have to get new loans and more investment partners. Solidarity also wants the state to take responsibility for obtaining the necessary extra loans or share capital. The state can also reduce the impact on the consumer, by financing it over a longer period.

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Such a step would also neutralise the risk of a weaker credit grading. ESKOM's new asset valuation model has anyway led to a radical increase in ESKOM's balance sheet, which should increase its creditworthiness," said Solidarity.

In terms of the Solidarity model, ESKOM would still be under pressure over the next three years, but there will be huge relief in years four and five, with ESKOM profits of up to R85 billion in years five and six.

It is, therefore, not necessary for ESKOM to finance its capital programme over six years. The financing can be done over a longer period. Solidarity also proposes that the cost of coal be investigated.

Furthermore, the trade union proposes that an increase of cents per unit be implemented instead of a general percentage increase.

RESOLUTION

The FF+ wish to endorse the use of an alternative financial model by ESKOM, which will avoid any increase in tariffs by ESKOM, and will finance ESKOM’s capital projects in a more rational, sustainable, and non destructive way for consumers and South Africa.

Solutions in different types of electricity generating modules available.

ESKOM is involved in a number of different power generating facilities. Some have not yet been investigated. Some of the electricity generating applications available are : The following methods of power generation, due to it’s variety, and complexity of each field, warrants a special type and concentration of research energies, as each offers exciting and varying forms of electricity.

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Nuclear power generation ; Coal fired power stations; Gas turbine facilities; Hydro electric plants; Hydro electric pumped-storage; Open cycle gas turbines; Municipal waste-to-energy; Tidal wave power generation; Wind power generation; Solar Thermal Power Generation;

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Establishing this sound base of knowledge should be the building block onto which the security of South Africa’s electricity supply should be build. All of these are being used to generate power for a large number of people, and are under study to a large or lesser extent by ESKOM.

RESOLUTIONS

The FF+ requests that a law be promulgated, to call into existence a chair at a university for the study of the field of electricity generation. This could be done in conjunction with the CSIR, as a matter of urgency.

The FF+ wishes to point out the erection of large wind farm in Kenya, delivering 5 000 Mw at a cost of approximately R110 billion.

The FF+ wishes to point out, and request the erection of a municipal-waste-to-energy plant used in Europe, that:     disposes of municipal waste; produces electricity in the process; produces a million liters of drinking water per day; produces a kind of slag, used for concrete manufacturing or bricks.