JOHANNESBURG (miningweekly.com) – The National Energy Regulator of South Africa (Nersa) would conduct an investigation into Eskom’s primary energy costs, and specifically the cost of coal, to establish the “prudence of the costs”, chairperson Collin Matjila reported on Thursday.

This comes as respondents to Eskom’s latest 34% tariff application, as well as to the 2008 tariff application, had called for an investigation into the high coal costs incurred by the power utility.

Regulator member responsible for electricity generation Thembani Bukula explained that Eskom’s primary energy costs kept increasing, despite the cost of coal it used remaining relatively unchanged and the fact that it was supposed to be burning less coal, as electricity demand had shrunk in recent months as a result of the recession.

During the public hearings on the tariff application, trade union Solidarity had urged Nersa to investigate the coal industry according to the Electricity Regulation Act.

At the time, Solidarity deputy general secretary Dr Dirk Hermann questioned whether the cost drivers highlighted by Eskom in its application were a real reflection of actual costs.

The union had noted that a number of major coal producers had achieved significant increases in revenues, operating profits and net profits from selling coal in recent years.

Hermann had questioned whether there was collusion or abuse of dominant positions within the coal industry. He said that should Nersa conduct an investigation and, should it find evidence of anticompetitive behaviour, it should hand over cases to the Competition Commission.

Nersa said on Thursday, when it granted Eskom a 31,3% interim increase in tariffs, that it would conduct an investigation, but that there were certain limitations to what it could do.

Bukula explained that, in terms of legislation, it could not conduct an investigation into the competition aspects of the coal industry, as this did not fall within its jurisdiction.

It would, however, investigate the way in which Eskom procured primary energy and coal and compare this with the other utilities that bought coal from South African coal-miners.

Eskom bought about 60% of the country’s coal, while the remaining 40% was sold to other parties, he said.

This would enable it to check the pricing of coal and find ways to assist the power utility in procuring its coal in a more efficient way, commented Bukula.

Nersa would also advise government and the relevant Ministers about issues that it believes need to be investigated, but which did not fall under its jurisdiction.

Solidarity welcomed the decision that an investigation into coal prices would be conducted, but said that this should have been done before the tariff decision was made.

Hermann had explained that the high input costs, primarily for coal and personnel costs, had formed a large part of Eskom’s tariff application.

“Nersa based its decision today, on a deficient application from Eskom. The energy regulator’s decision today, was not only uninformed, but will also place severe pressure on consumers,” he said.

Hermann added that Eskom’s coal expenses would likely increase by 81% in the two years ended March 31, 2010, while the company’s personnel costs could increase by 40% during that timeframe. This was according to the utility’s application.

Eskom spokesperson Fani Zulu said that the utility would work with Nersa in its investigation into primary energy costs. He noted that Eskom has already done a lot of work in this area. It would engage with the regulator in a constructive manner to help it understand the dynamics behind the utility’s costs.

The 31,3% tariff increase would take effect from July 1, 2009, to March 31, 2010, and would move the average standard electricity tariff to 33,14 c/kWh.