NUMSA commemorates the 100 year anniversary of the Russian Revolution

NUMSA’s Submission to NERSA on Eskom’s Application for a tariff increase

15 November 2017, Posted in Press Releases

NUMSA is a manufacturing union and since 2009, the union has witnessed the deep global crisis of capitalism in the manufacturing sector. NUMSA has witnessed hemorrhaging of jobs, plant closures retrenchments the downward variation of conditions and benefits of workers and the casualization of labour. At the centre of this crisis, especially in small, medium-sized companies has been the uncompetitive Eskom electricity tariffs.

The history of job losses can be traced to wrong the ANC government neo-liberal policies such as liberalization of trade, removal of exchange controls, continuous and the maintenance of high interest rates by the Reserve Bank. This situation was worsened the day government made the decision to move Eskom away from its core mandate which was to supply cheap electricity to the economy in order to grow the economy, to electrify communities and to create jobs. This mandate was replaced by a backward government and NERSA with the decision to prioritize their balance sheet, which was nothing more than to chase profits.

NUMSA has consistently called for the nationalization of all commanding heights of the economy and all our minerals. In the case of Eskom, we have consistently made a call that government must nationalize the strategic coal mines that must supply the national grid with cheap quality coal, so that we can escape the continuous exorbitant prices of primary coal, and deliver a competitive electricity tariff. If one were to look at the exorbitant primary coal tariff increases from 2007 to 2016, they are indeed shocking and appear to be a money-making scheme which is not in line with the original mandate of Eskom.

Eskom Coal Cost Increases

2007: R 10 billion

2016: R 48 billion

Means that coal costs should have been max R 21 billion –not R 48 billion

Eskom electricity tariffs are exorbitantly high. In 2008, the price of electricity was 25c /kWh and is projected to cost R1.07/kWh in 2018 in line with the proposed 19% increase. At this rate, all the smelters we have in the country that are not operating at full capacity, their furnaces will simply close and it is obvious that at the back of the 27,7% unemployment rate, we will continue to export all jobs to China.

In 2016, the Ferro Alloys producers reported that they shed 110 000 jobs as a result of the high electricity tariff and that many of their plants were mothballed and Tata Steel in Richards is in the process of closing down.

A number of Smelters Closed down Recently:

  • TATA
  • ASA
  • IFM
  • Machadodorp
  • Hernicin BR
  • Various MnFurnaces

Why are Smelters so Important to Eskom and the SA Economy?

  • Lowcost to provide smelters with electricity
  • Eskom makes their biggest profits with Smelters
  • Higher voltages, less distribution and Maintenance costs
  • Smelter tariffs are cross-subsidizing the poor
  • 24/7consumers of electricity

NUMSA has been calling for the banning of the exportation of Chrome Ore which is nothing but the exportation of jobs to china. We have demanded that it be beneficiated to produce Ferro chrome which is used in the manufacturing of steel. This will ensure that all smelters operate in full capacity and in fact, there will be more investments, jobs will be created and government will secure foreign exchange earnings which are desperately needed to stimulate economic growth. The continuing failure by government, the Eskom board and NERSA can only worsen the serious levels of de-industrialisation, unemployment and inequalities. In fact, the future of this chosen path – which militates against manufacturing and de-industrialisation – is to turn the entire labour market into the inferior Expanded Public Works Programme (EPWP) which continues to super exploit, women and the youth who are black and African who can only be employed in inferior, sweatshop jobs which are futureless.

This is not to say that NUMSA is not mindful of the cost nature of the heavy users who are smelters. We are instead making a case that what could be a win-win situation is to create a competitive advantage for heavy users by banning the

exportation of chrome ore. South Africa will not be the only country to do this. For instance, Indonesia has built its economy at the back of banning the exportation of Nickel Ore.

NUMSA is extremely irritated and dismayed by the opportunistic call made by the Eskom board and its management to increase the electricity tariff by 19%. This demand by Eskom is nothing less than the abuse of power and holding hostage the entire economy and its people. This is being done by an entity which has been moving from one scandal to another, with absolutely no leadership. In fact, it is extremely provocative that in a period of two years Eskom has changed 3 CEO’s and their CFO, as we speak, is suspended under a cloud of corruption and allegations of mismanagement. The same company and its board has got the guts, and with no regard for the implications, have the audacity to make a thumb-sucked demand of 19%. This is without any regard for the catastrophic implications which will constitute a national crisis of plant closures of small, medium and large companies, mass dismissals and trigger retrenchments in all big companies. It will destroy all opportunities to stimulate real economic growth. Furthermore, it will have the added impact of fueling unrest and service delivery protests will increase as this will exacerbate electricity cut-offs, thus angering the community.

NUMSA is of the view that this 19% increase is nothing but a corrupt gambling exercise by the Eskom management and its board. This is why NUMSA is making a clear demand that all the boards of SOEs be reconstituted by business, labour, civil society and government. These are social partners with an interest of both the economy and people and Eskom – through this 19% – is playing ‘zama zama’ of pitching this tariff which is a thumb suck with absolutely no scientific basis to justify it and it is banking on the fact that out of this unscientific inflated percentage, NERSA will award them an increase which they completely don’t deserve.

We are in an economy which has been in a technical recession for a couple of months, and many companies are depressed and are confronted with a job-loss bloodbath across all sectors. According to the Stats SA Quarterly Employment Statistics (QES, 2017), South Africa shed 75 000 jobs in the first half of 2017 across all sectors. The survey showed that the country lost 34 000 jobs between March and June and 41 000 jobs between January and March. Below is a breakdown of job losses by industry during the both quarters:

Industry

Number of Jobs Lost

Manufacturing

13 000

Construction

11 000

Community and Social Services

10 000

Transport and Communication

5 000

During the first quarter of 2017, the unemployment rate was up by 27.7%. Amongst other variables, the contributing factor was due to the increase in job seekers which was 433 000 (Quarterly Labour Force Survey, 2017). Approximately 30.4 million South Africans currently live in poverty; this means that over half of the South African population is living on an income of less than R992 per month. This is why NUMSA rejects, with contempt, Cyril Ramaphosa’s R3 500 National Minimum Wage.

It is the submission of NUMSA that in light of this national crisis of a job loss bloodbath, there can be no justification whatsoever to increase electricity tariffs. What government should be doing, is to stop the rampant looting of billions of rands that are leaving the national purse and get squandered in cronyism and corruption associated with tenders in SOEs, local municipalities and provincial governments. This money should be redirected to fund the Eskom budget and deliver free and compulsory education.

As far as NUMSA is concerned, this reckless demand of a 19% electricity tariff increase by the Eskom board and management, points to the equally reckless leadership of the ANC government which is desperately wanting to introduce – at all material costs – the unaffordable nuclear energy which will cost the country more than a trillion rands. The experience of global standards of introducing such a project is that the cost will be more than the much-talked about trillion. It is NUMSA’s submission – both on the electricity tariff increase and the reckless demand to introduce nuclear energy – that this should be driven by the needs of the economy and the country as it is only an idiot who can impose a 19% electricity increase the result of which will be to destroy the demand for electricity because companies will be closed and the economy will be destroyed.

NUMSA is not against the energy mix and a movement away from fossil fuels to renewables. However, we are very firm that the movement from fossil fuels must be driven by a just transition. It was only yesterday that this government spent billions in building power stations such as Kusile, Medupi and iNgula, which have left Eskom heavily indebted as a result but with excess capacity and many companies have closed because of the current unaffordable tariffs. It is NUMSA’s firm view that we have enough quality coal that should be supplied to the national grid at a cheap rate and that all the Eskom coal mines must be responsible for supplying the national grid and cut out the middle man that has imposed cost+3 on the electricity tariff. If this were to be done, we should be reducing the electricity tariff rather than increasing it.

NUMSA is troubled by NERSA’s decision to approve that Eskom should be allowed to carry on with reckless public hearings that are consulting for the 19%

increase. In fact, it poses the question about the leadership that constitutes the NERSA board i.e. whose interests are they representing? Again here, the same demand that NUMSA is making of reconstituting the boards and make sure that all social partners are represented, should apply to NERSA as well.

The implication of this tariff hike will be worse to economically depressed regions of the country and it will be further worsened by the fact that municipalities themselves – after every Eskom tariff increase – they impose their own increases. The glaring example is the impact of Eskom’s electricity tariffs on the Nelson Mandela Bay Municipality (NMBM). This is a leading municipality with very expensive property rates in the country:

Eskom tariffs have increased 2.5 times since 2008 in real terms

The application means a further increase of 27.5% to the tariff charged to the municipality

The application means an increase of R850 Million to the NMBM consumers

R 265 Million increase to households

R 160 Million increase to small business

R 425 Million increase to industry

 

This tariff increase can only deliver a vicious cycle for Eskom and spells bad news for the economy and consequently for jobs.

  • Eskom’s generation including IPP’s reduced by 7% since 2008
  • We will further reduce our electricity usage
  • Eskom will sell less and decline further
  • Economic decline, SA will shrink
  • Investment will reduce further
  • Poverty, unemployment and inequality will increase

NUMSA demands full disclosure from both Eskom and NERSA on the following:

  • Coal cost detail
  • IPP contract detail
  • R77 billion capital expenditure in 2018/19: no detail
  • Regulatory asset base information is non-existing
  • Primary energy calculations per methodology are missing
  • Cost and subsidisation of SPA and foreign sales are undisclosed
  • Integrated 5 year IDM plan is missing, but cost is part of the application
  • We have made the point that since Brian Dames left, the Eskom turnover of Boards and CEOs has been mired by maladministration, inefficiencies that have been too costly for the utility. As we speak, Eskom is leading on allegations of state capture where KPMG, McKinsey, Trillian (R1,6 billion), have had their hands found in the cookie jar with questionable settlement packages running in millions of rands and to position others to create an enabling environment for the continuing of looting and cronyism. There is no day that goes by without Eskom being in the news for all the wrong reasons and as we speak, it has no permanent CEO deliberately so- as a permanent ploy to advance anarchy and looting associated with tenders.

The following faces are very familiar, with an expansive story behind each one of them – whether it was to buy them out or silence them with a golden handshake. This is what the Eskom board, its management and NERSA is subjecting us to.

NERSA must tell whether they did anything about the qualified audit report which raised the below issues before they approved this 19% tariff increase,:

  • Effective steps not taken to prevent irregular expenditure. The full extent could not be quantified.
  • Effective steps not taken to prevent fruitless and wasteful expenditure in contravention of the PFMA.
  • Goods, works or service not always procured as required by section 51(a)(iii) of the PFMA.
  • Contracts were not awarded in accordance with the PFMA.
  • Irregular expenditure: R3 billion
  • Fruitless and wasteful expenditure: R510 million

The cost overruns incurred in the completion of both Medupi and Kusile, against the above background of complete absence of accountability, makes NUMSA to

have absolutely no option but to ask the question of whether the existence of both the board of Eskom and NERSA is justified and on what basis any sober person – in light of the heavy indebtedness – can be hallucinating on the nuclear energy which is projected to be over a trillion:

Eskom Project Cost Overruns:

Medupi

2007 Budget R 69.1 billion

Currently R 145 billion

Cost to Completion R 195 billion

Kusile

2007 Budget R 80.6 billion

Currently R 161 billion

Cost to Completion R 225 billion

NUMSA is not just rejecting this unjustifiable demand of increasing electricity tariffs by 19%. We regard this as an open provocation and a challenge which we have accepted. As a result, the union – in the interest of the country and the jobs of its members – has been left with no option but to follow all the necessary processes and embark on a rolling mass action which will not exclude a strike action to reject this dubious call which will lead to the closure of plants and worsen retrenchments and the triple crisis of poverty, unemployment and inequality. We will leave no stone unturned; this includes legally interdicting this fraudulent, dubious process of NERSA and Eskom.

Issued by:

Irvin Jim

NUMSA General Secretary