Eskom Holdings SOC Ltd. power utility said its ballooning debt can only be kept in check if it’s paid cost-reflective tariffs because cost cutting offers limited respite and government bailouts are unsustainable. The company’s finances have deteriorated despite the government having given it 188 billion rand in grants and loans over past decade. Besides being denied the tariff increases it requested by the electricity regulator, Eskom has also been grappling with breakdowns at its old and poorly maintained power stations and massive cost over-runs at two new plants. Inadequate generating capacity has resulted in rotating power cuts that have reached new heights this year and dealt a further blow to an already struggling economy.
Power prices need to rise 25% in real terms for Eskom to become sustainable, Eskom Chief Financial Officer Calib Cassim told parliament’s Standing Committee on Appropriations. He noted that the average price of electricity has increased five-fold since 2007-08, while Eskom’s debt grew nearly 10-fold. The utility’s tariffs rank among the lowest in the world. Eskom produces most of its electricity from coal, and the fuel is among its biggest costs. Negotiations with suppliers had failed to deliver cost-saving.