Transcript GMnext stump deck

Content
Introduction
Eskom Tariff Motivation
Cost Implications
Economic and Global Competiveness
Recommendation
Introduction
The Port Elizabeth Regional Chamber of Commerce & Industry (PERCCI), representing the
interests of business in the Nelson Mandela Bay metropolitan area, rejects Eskom's proposed
35% electricity tariff increase.
The proposed increase will have a significant adverse economic impact and pose a
considerable challenge to the continued survival of the manufacturing industry and commercial sector
in this region.
The increase will constitute a serious setback to the competitiveness of our products locally
and on the global market.
It has been argued that the proposed increase is required to fund capital expenditure to
bring generation capacity in line with expected demand. However, the build programme
appears to have lost momentum in line with reduced demand due to the economic downturn.
In light of the reduced spending requirement, the need for additional funds is questionable.
In addition, efforts to reduce demand through promoting energy efficiency must be stepped up.
The proposed Power Conservancy Programme “PCP” legislation has not been finalised and will have a
devastating impact on high energy users and limit growth. Coupled with this proposed 35% increase,
the effect will greatly reduce viability of certain industries.
Electrical Tariff Increases Motivation
The need to increase generation capacity and to find capital for the build programme is recognised. However, we have the
following concerns:

The NERSA application is to fund increased capacity. This is to improve the low reserve margin. Eskom are delaying a portion
of the build program. Why can we not re-phase the increase accordingly?

Consumption decreasing: Sales decreased in the last financial year by 4.2% according to Eskom’s 2009 financial report. With
negative growth in the economy why can Eskom not reconsider timing on capital spend?

With new technology we improve efficiencies. There is no commitment to ensure efficiency improvements will offset
increases of this nature going into the future. What is Eskom doing to reduce its capital, operating and primary energy costs?
This is without affecting reliability due to reduced maintenance as proposed in your application?

Coal cost in S.A is one of Eskom’s concerns. Coal supply was one of the primary reasons for the rolling black-outs in 08/09.
What is Eskom doing to improve its efficiencies in meeting coal requirements efficiently and effectively?

We started 2008 with little or no coal stockpiled. In 2009 we essentially brought this up to 41 days. The coal purchased for
this financial year will be for 12 months and not include the expense of 13,5 months as did 2009. Why are our coal costs
increasing for 2010?

Coal production in terms of long-term coal supply agreements is down, resulting in more expensive short/medium-term coal
agreements having to be utilised. Why are we allowing these inefficiencies from the coal miners on long-term contracts and
what is Eskom doing to manage its coal pricing and transportation?

With the 35% increase you show you will still have a deficits of R14,1-billion for 2011/12 and R7,9-billion in 2012/13. Then
2013/14 shows a R18.089-billion surplus and 2014/15 a R43.302-bllion surplus. Why can we not spread this increase over 5
years if required?
Impact on Business

The negative knock-on effect on the Eastern Cape economy.

Predictions that staff will have to be retrenched.

Goods and services would be less competitive on local and global markets.

Small businesses with high electrical input cost would not be able to afford the increase
along with high rentals, and would simply have to close down. Examples of these are
Hair Dressing salons, Laundromats, Fast Food outlets.

The Nelson Mandela Metro has already increased the water tariff by 20% due to the drought.
The added utility costs will negatively impact business in the region.

The introduction and legislating of the “PCP”. The process as is only targets business and they are the ones
we should be protecting to ensure job security.

After-tax profits will be impaired.

Negative impact on the poor.
Trend of Electricity Cost
Large Business 6.6kV and Above
R 1.000
40.00%
Cost / kWh
Percentage increase
R 0.900
R 0.900
35.00%
R 0.800
30.00%
R 0.700
R 0.667
25.00%
R 0.600
NMBM absorbed Eskom
Increases
R 0.494
R 0.500
R 0.400
R 0.366
20.00%
15.00%
R 0.29276
R 0.300
R 0.200
R 0.152
R 0.163
R 0.173
R 0.191
R 0.196
R 0.205
R 0.216
10.00%
R 0.225
5.00%
R 0.100
R 0.000
0.00%
2000 2001
2001 2002
2002 2003
2003 2004
2004 2005
2005 2006
2006 2007
2007 2008
2008 2009
2009 2010
July '10 - July '11 - July '12 July '11, July '12, July '13,
35%
35%
35%
Eskom Increases - Estimated Cost Implication to Large Business
Consumer Category: 6.6kV and Above
An example of how much higher an average business' electricity bill will be after the 2010 hike, using a
large manufacturer – one of the city’s top 40 electricity users – as an example.

1st Year increase
= R6-million MORE

2nd Year increase
= R14-million MORE

3rd Year increase
= R25-million MORE
NEW BILL in 2012 = R42.7-million
R 45,000,000.00
Note: This is over and above what the company pays now.
R 42,746,379.36
R 40,000,000.00
R 35,000,000.00
R 31,663,984.71
R 30,000,000.00
R 23,454,803.49
ZAR
R 25,000,000.00
R 20,000,000.00
R 17,373,928.51
R 15,000,000.00
R 10,000,000.00
R 5,000,000.00
R 0.00
2009/2010
July 2010 to July 2011, 35%
July 2011 to July 2012, 35%
July 2012 to July 2013, 35%
Eskom Increases - Estimated Cost Implication
Consumer Category : Medium Business
A medium-sized business consumer with an average bill of a R100,000 per month, i.e. R1.2million/year, would see the following :


1st Year increase
2nd Year increase
= R420,000 MORE
= R987,000 MORE

3rd Year increase
= R1.75-million MORE
NEW BILL in 2012 = R2.95-million
Note: This is over and above what the company is paying now.
Consumer Category : Domestic
A medium household with an average bill of R 800.00/month, i.e. R9,600.00/year, would see the
following :


1st Year increase
2nd Year increase
= R3,360 MORE
= R7,896 MORE

3rd Year increase
= R14,019 MORE
NEW BILL in 2012 = R23,619
Note: This is over and above what the household pays now
Socio-economic & development impact
•
Interest rates increase.
•
Personal disposable income would be reduced.
•
Lowered employment.
•
Socio-economic domino effect.
Economic Impact and Global Competitiveness
The proposed increase will have a significant adverse economic impact and pose a considerable
challenge to the continued survival of the manufacturing industry in this region. The increase will
constitute a serious setback to the competitiveness of our products locally and on the global market.
This becomes increasingly difficult for manufacturers as the overhead cost is not absorbed with the lower
volume.
Typical Automotive Production and Electricity Consumption data (kWh) 2004 – 2009
80000.00
Electricty Consumption [ MWh ]
Production [units]
1.14
71032
70000.00
70265
65260
1.01
1.00
0.85
51942
0.79
0.80
44276
0.79
55824
48859
50000.00
0.79
51403
48401
56235
60000.00
40000.00
1.20
Electricity per unit
0.60
25767
30000.00
20000.00
22595
0.40
0.20
10000.00
0.00
0.00
2004
2005
2006
2007
2008
2009 [Oct]
Economic Impact and Global Competitiveness
The historical cost of electricity has given the manufacturers in the region a competitive advantage
against the global competition.
This is being eroded. South Africa's relatively cheap electricity cost, in comparison with the rest of the
world, is a major competitive advantage in attracting investment. Eskom can argue that the proposed
increase will not bring us to the price levels of the rest of the world, but the fact remains that it will
seriously erode this competitive advantage and bring us in line with first world electricity costs.
$250.00
Global Electricity Cost Benchmarking (US$/MWh)
2008
$34.69
$27.34
$40.76
$134.63
$40.82
$69.73
$59.40
$73.66
$64.80
$76.71
$100.59
$86.61
$103.68
$93.25
$107.88
$138.87
$130.57
$142.24
Hungary
South Africa
Argentina
Egypt
Korea (South)
$50.00
Australia
Colombia
$144.77
$157.30
After 3 year @ 3% per annum inflation
Ecuador
Poland
Sweden
China
India
$100.00
United Kingdom
$162.84
$150.00
ELECTRIC UNIT COST - 2008
$173.27
$197.56
$200.00
South Africa
2012
Russia
Vietnam
Thailand
Spain
Brazil
Germany
Austria
Kenya
Belgium
Cost USD
$0.00
Recommendations
In rejecting the proposed increase, we recommend:
•
That attention is paid to the efficiency of Eskom's structures and reduction of structural costs across all
sectors of the organisation.
•
As Eskom is a state-owned enterprise, Government should subsidise Eskom's build programme because of
the reluctance to introduce private enterprise into the energy industry; IDC and DBSA can be approached
with a debt service plan.
•
That the price of exported electricity be increased above that of the local increase in order to first protect
the viability of industry within our own borders.
•
That incentives be considered to reduce and remove non-productive, wasteful and inefficient energy
consumption from the grid. DSM is one tool but is not efficient and effective to allow participation of all
sectors. Measures be put in place to approve funding at a regional level to eliminate some of the
bureaucracy.
•
That the import of inefficient energy appliances, fixtures and lighting be prohibited, in order to contribute
to demand reduction and limit the need for capital expenditure on new generating facilities;
•
That Government legislates energy efficient practices in the building industry to reduce the burden when
new infrastructure is connected to the grid.
•
As in the MYPD application we support the call for Government to ensure the roads are maintained.
•
Theft of electricity and conductor theft contributing to revenue loss and maintenance costs. Engage Government
and request improved legislation on metal merchants who are creating the market for conductor theft and safety
and security services for illegal connections.
Recommendations continued
Reduce the peak demand
•The high energy users who have the benefit of cheaper electricity because they can be
interruptible. This needs to be enforced to eliminate peaks.
•Explore the use of Ripple Control thoughout South Africa to interrupt non-essential loads.
•Time of Use Tariff – Applicable to Commercial and Domestic consumers.
•Educate domestic consumers that they are responsible for 33% of the load and play a part in
peak demand
Regional Demand Profile – Eastern Cape

30% increase in demand for 3
Traction, 4
Agricultural, 3
hours/day.
Industrial, 28
Commercial,
28
Domestic (Rural), 4
Domestic
(Urban), 33
06h00
18h00