PRETORIA (miningweekly.com) – South Africa’s Chamber of Mines said on Monday that the country’s energy regulator should allow power utility Eskom a “sufficient” interim tariff to enable it to operate in a sustainable manner until the second multiyear price determination (MYPD-2) and a funding model could be developed.

Speaking at the first day of public hearings into power utility Eskom’s application for a 34% interim tariff increase, techno-economics assistant adviser Dick Kruger said that the mining and minerals sector favoured a long-term electricity pricing plan, as it gives companies greater certainty regarding costs.

Electricity forms a key component of the cost of production, especially in deep-level mining, and is vital for the safety of mineworkers. The mining industry consumes 15% of South Africa’s power.

Eskom CEO Jacob Maroga said that the interim tariff hike, which fell outside the framework of the MYPD-2, would ensure that it could guarantee security of electricity supply, while it finalised its funding model by the end of September.

Eskom is expecting to have a funding shortfall of R25,7-billion in the 2009/10 financial year and about 51%, or R52,6-billion, in the 2010/11 financial year, he said at the National Energy Regulator of South Africa’s (Nersa’s) public hearings.

The interim tariff increase will cover the period to end-March 2010, and Eskom will submit a new application to cover a three-year period to March 2012, based on a revised funding model.

Kruger stated that if the funding model and MYPD-2 were not finalised in time, it would necessitate another interim price increase.

Meanwhile, he said that the CoM was not clear how Eskom had arrived at the 34% interim tariff increase figure.

Kruger said that the chamber had not been able to look at the power utility’s financial statements to determine if the increase was justified or not, as Eskom had not yet made its annual report available.

He also highlighted that certain non-Eskom generation aspects, such as fuel for the open-cycle gas turbines, would not be covered under the increase and that an unspecified mechanism would provide for these costs.

However, it was not clear what this unspecified mechanism would entail and what would be done if this did not materialise, he noted, asking that clarity be provided in this regard.

Kruger also called on Nersa to cater for a mechanism to be created, which would allow for the varying of coal prices. In the previous electricity tariff deliberations in 2008, the regulator envisaged the development of such a mechanism.

He noted that Eskom, which buys about 49% of the mining industry’s coal, was expected to rely on short-term coal supply contracts for the foreseeable future.

Nersa would announce a decision on Eskom’s application on June 25.

Last year, Eskom was granted an average tariff increase of 27,5% for the 2008/9 financial year.

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