Nersa snubs Eskom with 12% – a third of what it asked for

Energy regulator Nersa cut deep into Eskom’s application for a 36% tariff increase on 1 April, 11.81% in the next year and 9.1% in 2027/28 that had domestic and commercial consumers up in arms.

It announced on 30 January that Eskom will only be allowed to implement increases of 12.7%, 5.36% and 6.19% in each of the next financial years.

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In total, over the three years Nersa has reduced the allowable revenue by R247 billion, instead of the R445 billion, R495 billion and R537 billion Eskom wanted for each of the next three financial years.

Source: Nersa

While the allocation is much less than consumers feared, it may come back to bite them as taxpayers – by necessitating further government bailouts due to the lower-than-anticipated revenue as well as the ever-growing arrear debt from municipalities.

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Peter Attard Montalto, MD of advisory firm Krutham, says: “The big negatives here are that Eskom will have to sharply cut investment in the coming year and it confirms in our minds the need for a further year of bailout in 2026/27.”

Government previously granted Eskom a debt-relief package of R254 billion to be paid over three years ending 2025/26.

Eskom CEO Dan Marokane also earlier raised the possibility of further government bailouts in the context of rising arrear debt from municipalities.

Three allocations 

Nersa for the first time made separate allocations for Eskom’s generation division, the National Transmission Company of South African (NTCSA), and the distribution division.

The amounts allocated to each will be ringfenced to avoid a repeat of previous occasions when generation gobbled up the allocation to other parts of the business.

The deepest cuts were made to the distribution revenue, where Nersa disallowed any compensation for arrear debt.

Nersa refrained from cutting too deep into the NTCSA’s capital budget, despite the historic underspending on this.

Nomfundo Maseti, full-time regulator member for piped gas, who also currently acts as regulator member for electricity, said Eskom has been underspending on capital projects for transmission for the past 10 to 15 years.

Read: Historic underspending on transmission may cost NTCSA dearly

After considering the reduction of this allocation, Nersa decided to give the NTCSA the benefit of the doubt but monitor its execution closely.

The allocation is therefore substantially what the NTCSA asked for, but is conditional on it being ringfenced – and Eskom must report quarterly on progress with the execution of its capital programme.

Nersa took into consideration the urgent need for grid strengthening and expansion to connect independent power producers to the grid and integrate renewable energy into the system.

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This comes after no wind projects were awarded in Bid Windows 6 and 7 of government’s Renewable Energy Independent Power Producer Procurement Programme (Reipppp), which undermined investor confidence.

Decision-making process

In making the revenue determination Nersa considered both the affordability of electricity tariffs and Eskom’s sustainability, according to Nersa chair Thembani Bukula.

The regulator received 1 200 written submission and held public hearings in every province. Bukula said both residential and commercial electricity users were very concerned about the rising cost of electricity. Residential users said they had to choose between food and electricity and business people said they are at risk of closing down.

In coming to their decision, regulator members limited Eskom’s revenue by only allowing it to recover efficiently incurred cost.

Despite cutting its anticipated costs drastically, Nersa allowed Eskom to phase in a more realistic rate of return than the current year’s 1.3%. This will increase to 4%, 5% and 6% in each of the coming financial years.

The target is 10%, which is more in line with the interest rate Eskom pays on its lending.

‘Bitter pill’

Minister of Electricity and Energy Kgosientsho Ramokgopa welcomed the announcement but also acknowledged that it may be a bitter pill for Eskom.

He called on Eskom “to stay the course with its investment strategy to strengthen and modernise its generation, transmission and distribution infrastructure”, saying the ministry will work with Eskom to drive greater efficiency gains.

Bukula said Nersa will before the end of February decide on Eskom’s application to change the structure of its tariffs. Eskom will then finalise the detailed tariffs for each consumer group, including the increase in what municipalities will be paying.

The Eskom tariff increase will be implemented on 1 April and municipalities will raise their tariffs on 1 July.

The detailed reasons for Nersa’s decision will be released later.

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