1. It’s now time for political decisions
Mike Muller
Visiting Adjunct Professor
Graduate School of Public and Development Management
Wits University

2. What more can be said? And done?
After extensive hearings, little new to be said about the specifics of ESKOM’S tariff proposal
Broad consensus:
Proposed increases unacceptable, but
Two key questions not resolved:
How to fund capacity to avoid future blackouts?
Who should fund?
(Loan funding red herring – how will it be repaid?)

3. What should now be done? Submit that the NERSA process is now
Deeply flawed
Unreasonably constrained
Indicative of systemic problems
The correct alternative:
Return the matter for political decision

4. (… long-term, smoothed tariffs)
May 2008 submission …. If electricity had adopted water sector approach…
(… long-term, smoothed tariffs)
ESKOM would not need current increase
Home users would not be threatened
Economy and jobs would not be undermined
Industrial plans would reflect real energy costs
Historic mistakes!
Electricity was priced by NERSA for surplus
When sector clearly moving into scarcity
Prices made no provision for new capacity
Applied short-term thinking to long-term process

5. May 2008 suggestion: Since crisis caused by: Government policy failure
Indecision on generation model
Unclear mandate to ESKOM and NERSA
Regulatory failure
NERSA’s failure to identify obvious trends and threats
Consequent failure to provide sustainable pricing
Stabilisation costs
appropriately borne by Government as shareholder
through recapitalisation of ESKOM.

6. May 2008 conclusions: Key matters to refer to Government:-
Recognise & compensate financially for incorrect policy and regulatory decisions
through capital grant (increased equity)
Then begin to price for future scarcity
20 months later, decisions still not taken!!!
Framework remains uncertain!!!

7. Why the current process is dysfunctional
New option tabled to resolve the problem
Cabinet considering “part-privatising” some generators
An alternative to increasing Government’s equity
This option not mentioned in NERSA’s issue paper
Yet could have dramatic impact on tariffs
Option not adequately interrogated or consulted
Notwithstanding key function of independent utility regulators:
bridge information gap between public and private
(& create predictable conditions conducive to private investment)

8. Implications of new developments…
Public interest implications not adequately publicised, analysed or consulted;
Specifically
Competitive issues of ad-hoc part-privatisation?
Pricing for electricity from part-private generating entity?
Take-off guarantees to such a generating entity?
Will preferential treatment reduce use of least cost supplies?
Cost of guarantees for the price of electricity to the public?
Evidence that private engagement will increase efficiency?
No framework in place to evaluate public interest

9. The appropriate way forward
These matters require political guidance
Without this, NERSA not competent to make a determination
Since ,
This impasse created by failures of commission and omission, on the part of both NERSA and Government
Key option a choice between government or private equity
Implications not analysed or presented to the public ...

10. The appropriate way forward
Submit that :
Appropriate for NERSA to recuse itself from these decisions,
Request that Government either
Rapidly, establish a framework for NERSA to use, or
Consider the issues tabled, the limited options that remain,
and
Make a direct political decision, in the national interest

11. Thank you
- and good luck!