Eskom could lose the business of its biggest client following the rejection of its application for a special pricing agreement with South32, City Press reported.

The National Energy Regulator of SA (Nersa) rejected the application on Thursday, stating that the department of mineral resources and energy has not yet finalised the policy for long-term agreements between Eskom and high-demand energy users.

South32’s Hillside plant is located in Richards Bay, KwaZulu-Natal, and comprises almost 5% of Eskom’s annual electricity sales.

According to the report, Hillside was paying R0.23 per kW to Eskom in 2015, despite the power utility paying R0.41 per kW to generate electricity at the time.

South32 and Eskom are now disputing their existing contracts, and Eskom has submitted a new contract proposal to Nersa which would be valid for 10 years.

Nersa has reportedly written to the energy minister to acquire a framework for processing these types of applications, with many manufacturing companies stating that the finalisation of this long-term framework was crucial.

South32 said the outcome of this dispute would determine whether the Hillside plant stayed open or closed down, adding that if it were to close, the aluminium industry and national economy would suffer and there would be significant job losses.

Municipal debt and tariff hikes

Eskom’s financial problems are not exclusive to regulation and large manufacturing companies – it is also owed a significant amount in debt by municipalities.

Debt owed to Eskom by South African municipalities has increased to R26.8 billion by the end of December 2019, CEO Andre de Ruyter said on Friday 31 January

De Ruyter said that the R26.8 billion owed by municipalities includes interest, while debt owed to the group from individual users is currently sitting at R16.5 billion.

Eskom is currently engaged in court battles with Nersa in a bid to get the tariff hikes it needs to recoup losses made from non-payment.

The power utility applied for a 15% increase in tariffs each year for three years to 2021/22, to recover R219 billion. However, Nersa only granted an averaged 8% increase for each year.

According to Eskom’s legal counsel, Nersa had taken the R69 billion bailout given to Eskom at the time of its application as part of this recovery, and so excluded it from its calculations. It is accusing the regulator of not following its own methodology.