Eskom financial director Paul O’Flaherty. Picture: PUXLEY MAKGATHO

ESKOM had not taken into account a possible carbon tax, or acceleration of the electrification of South Africa in its application for tariff increases for the next three years, the power utility’s chief financial officer, Paul O’Flaherty, said on Tuesday.

Mr O’Flaherty was answering questions before Parliament’s portfolio committee on energy on issues that he said kept Eskom executives awake at night.

"The demand forecast is an issue if it goes below 1.9%, or if it goes above 1.9% it is an issue," he said.

He said Eskom’s scenario planning took no account of a possible carbon tax. When the government has taken a decision on carbon tax, Eskom might be heavily liable, as 92% of its generating capability is from coal-powered stations.

He said decisions or changes to the national electrification strategy, termed the Integrated Resources Plan 2010, were also of concern. The plan is due to be updated by March and any possible changes have not been factored into Eskom’s latest tariff increase application.

During its briefing to the MPs, Eskom said it was at least 15 years out from instituting inflation cost tariff increases as it needed 16% increases for the next five years, then followed by a similar period of 20% increases, with a final five years of 9% hikes.

Mr O’Flaherty said these increases were based on the assumption that Eskom generated 65% of the country’s electricity and independent power producers (IPPs) the remainder, using mainly renewable energy sources. The increases also did not factor new power stations beyond Kusile, which is due to be commissioned in 2014.

He said Eskom’s tariff increases have provided for the costs of using and replacing its assets and servicing debt raised to fund investment in new infrastructure, which stands at R187bn. The application included the introduction of new IPPs in all phases of the Department of Energy’s renewable energy programme (3,725MW) and the department’s peak plants (1,020MW).

Average annual increase of 13% to meet Eskom’s needs over five years, plus 3% to introduce new IPPs made a total of 16% a year.

"We have included a long-term price path to implement new capacity beyond Kusile, but this is not included in our revenue requirement for the five years," Mr O’Flaherty said. He said there was also the possibility of the cost of new technology decreasing significantly.

"Is there something else there that could come onto the landscape and completely change the picture, and why not?" he said.

Mr O’Flaherty described Eskom’s pact with mining as "a push" as it needed coal supplies to be contained while overseas demand, particularly from India, increased the prices of high grade domestic coal.

Turning to credit agencies’ ratings, Mr O’Flaherty said the power utility needed to keep its rating at investment grade.