One thing feared by all production businesses is a sudden change in profit. ‘Production businesses’ are businesses which take a lot of materials and convert these into something else – for example, mines take ore and produce metals, milling factories take wool and weave it into fabrics, clothing factories take fabrics and make clothes. And so on.

A sudden change in profit for the good is always welcome but for the bad is to be feared. The problem is, if you are selling goods to local markets, then, if your profits fall, you can take the knock and expand your sales, go out of business or increase your costs to meet profit expectations. None of these is desirable. It is much better to jog along, trim here, trim there, increase controls and so on.

What does take the breath out of a business are the recent actions by the National Energy Regulator of South Africa (Nersa), a government body that is supposed to regulate the electricity, piped-gas and petroleum pipeline industries in terms of the various applicable national regulations. By ‘regulate’, the idea is that the various industries cannot charge any amount they want for the supply or service they supply – the tariffs have to be approved by Nersa. But recent court rulings have shown that Nersa has erred badly in some of its decisions – generally, by not allowing Eskom to include certain operating costs. Eskom is in general allowed to charge an amount which recovers its fuel and operating costs and allows some markup on these. Nersa has erred by not allowing Eskom to include certain operating costs. The dispute refers back to 2018/19, when Eskom requested a 18.91% average price increase and was granted only 5.23% by Nersa. It seems that it hardly occurred to Nersa that, if its calculations of Eskom costs and price increase justifications differed so widely from Eskom’s own calculations, there must be something wrong. Grievously wrong. And there was. Judge Jody Kollapen, in Pretoria High Court, berated

Nersa for “unfairly, irrationally and unreasonably” departing from the methodology by which the tariff was determined. Kollapen said Nersa had deviated from the methodology in important respects, without informing Eskom beforehand and allowing it an opportunity to be heard.

Nersa did not use the agreed methodology to determine Eskom’s coal costs, which requires a detailed analysis of the grade of coal procured, its burn rate and other factors.

Nersa also wrongly excluded two power stations – Hendrina and Arnot – from Eskom’s asset base on the grounds that Eskom had excess capacity.

Kollapen said employee costs were also calculated in an incorrect way, using 2007 staffing levels as a benchmark, from which it determined the extent to which Eskom was overstaffed. Further, Nersa refused to allow Eskom to recover the costs for its demand management programme.

Now, let’s stop there. Kollapen is a former human rights lawyer. You have to be pretty smart to understand Eskom’s point of view with regard to costs and stuff. Yet the points were obviously so clearly made that a human rights lawyer understood them. Why, for heavens sake, didn’t Nersa grasp these points? Why be in court at all? Clearly, Nersa thought it had a case when, in fact, it had no such thing. This is deeply worrying. Nersa is not supposed to be so wrong. It may have something to do with the fact that only one of the eight board members of Nersa has any Eskom experience. The rest have degrees in economics and commerce and various soft energy experience. It is quite possible that Nersa officials have/had developed a sort of overinflated opinion of themselves and a belief that they ruled over all they saw. That has been kicked into touch and, if they had any moral belief, they should resign, the whole board. But, on the horizon, Eskom is going to put tariffs up 18% and, for many industries, this cannot come at a worse time. Thanks to Nersa, we need this now. Not.