21 May 2020
Agri Western Cape took note of Nersa’s decision to approve R13.3 billion in Eskom’s favor with respect to Eskom’s regulatory clearing account of R27.3 billion.
Mr Jannie Strydom, CEO of Agri Western Cape, says the organization is disappointed with the decision.
He said that during a public hearing in February in Cape Town in Cape Town, Agri Western Cape requested that the National Energy Regulator (NERSA) not approve Eskom’s application because consumers can’t continue to carry the cost of a power supplier with a broken business model.
“The demand for electricity in the agricultural sector is basically inelastic and farmers can do little to reduce the specific costs of electricity, which can account for up to 20% of direct costs, in the short term. “The fact that electricity costs have risen by more than inflation over the past decade, and product prices have not risen accordingly, contributes to the cost squeeze effect in which agricultural producers find themselves.” Mr Strydom says the financial impact of a tariff increase in electricity, as well as issues such as load shedding during peak production times that puts enormous pressure on the agriculture sector, are forcing the sector to explore other alternatives.
In their presentation to Nersa, Agri Western Cape said they were not convinced that the request for a further amount of about R27 billion was necessarily correct. “There are simply too many things in the application that are unclear and that indicate – in Agri Western Cape’s opinion – that Nersa and Eskom are not on the same page. This is clear from the different views on how capital expenditure should be accounted for and the impact on cash flow; huge differences between approved and actual diesel consumption; huge variations between approved and actual energy costs (coal); unrealistic expectations with regards to the retrenchment of employees, and similar RCA applications that still haven’t been dealt with for the previous three years and led to legal proceedings,” Mr Strydom said.