ESKOM Special Appropriation Bill ESKOM Subordinated Loan Special Appropriation Amendment Bill

1. ESKOM Special Appropriation BillESKOM Subordinated Loan Special Appropriation Amendment Bill Parliamentary Committee on Appropriations Hilton Trollip 19 June 2015

2. facts • Firstly, it is uncontested policy, backed by legislation and regulation, that Eskom and the local government electricity supply industry be able to set tariffs that cover their costs • This is central to other broad ranging extensively argued and well thought-through long standing South African government economic policies and principles • Secondly, government has chosen Independent Regulation, with transparent data and processes to set these tariffs, and the established the regulatory process and institutions** that should lead to outcomes where costs are covered • Thirdly, in a number of recent tariff determinations, Eskom tariffs were set that clearly did and would not cover costs – this was communicated without any ambiguity at the time. The tariff process has become disorganized. …this points to a systemic undemining of government policy and transparent and independent regulation, and democratic governance designed for this sector **…see NERSA staff slide

3. NERSA STAFF - 177

4. accepted • There is an urgent necessity to make up Eskom funding shortfall fund Eskom as a direct result of multiple tariff determinations not yielding a result covering Eskom costs • Undermines the foundation of Independent Regulation: the espoused and carefully constructed legislated policy of government and hence undermines democratic governance itself • Providesa non-transparent ‘out-of-policy’ subsidy to the energy intensive sector generally and the electricity sector particularly  Large unintended economic distortion

5. What to do • Snookered, in the very short term, so • Make provisions such as the proposed appropriations • BUT • Only make these big enough to overcome the immediate crisis • Make this conditional on the policy and practice and institutional capacity (NERSA) being immediately re-established to implement policy and legislation to effect cost-reflective tariffs • Establish the effective subsidy to energy intensive industries in the appropriations and recover these in a tariff premium • This will establish the correct price signals to achieve shifts in the economy away from non-transparent subsidies • When tariffs become unaffordable to poor households, use transparent mechanism to provide relief  If we don’t do this we will be allowing a new problematic governance regime to become further entrenched with further severe problems down the line

6. The conversion will have no direct cash flow impact either for Eskom or government • The funds were already appropriated and paid between 2008 and 2011 • Eskom is currently not paying interest or guarantee fees on the loan, nor was it anticipated to do so over the three year period of the MTEF ?

7. ESKOM SUBORDINATED LOANSPECIAL APPROPRIATION ACT (2008/9-2010/2011FINANCIAL YEARS , 2008 • The conversion will have no direct cash flow impact either for Eskom or government • The funds were already appropriated and paid between 2008 and 2011 • Eskom is currently not paying interest or guarantee fees on the loan, nor was it anticipated to do so over the three year period of the MTEF • ?