By Gordon Bell
JOHANNESBURG (Reuters) - South Africa's power utility Eskom's request for a 53 percent real price increase was prudent and based on a sharply higher cost of coal, the company's CEO Jacob Maroga said on Tuesday.
But the higher costs had not affected Eskom's coal purchases, he said, rejecting criticism from the national energy regulator that it had allowed stocks to fall to "unacceptable levels", triggering power cuts.
State-owned Eskom has been battling to meet fast-growing demand for power, leading to outages that have left streets and homes darkened.
Mines, including the world's biggest platinum and key gold operations, were forced to shut for 5 days in January, and are still only receiving 95 percent supply.
Households and businesses are expected to cut demand by 10 percent to avoid rolling blackouts, or "load shedding".
Eskom wants the regulator (NERSA) to approve a large tariff increase to help it meet coal costs and to fund a 343 billion rand, 5-year programme to boost capacity.
Maroga said coal prices were the main factor in its tariff request, adding NERSA had not taken this adequately into account in a damning report released on Monday.
"The biggest contribution to the current price application is the primary cost of coal ... but we have not stopped the purchase of coal due to financial considerations," he told reporters.
"We believe that the price is a prudent price and we believe NERSA should be able to come close to that price when they do the approval."
However, how the necessary funding was sourced was up for discussion, Maroga said, adding more state funding over and above a planned 60 billion rand injection was an option.
Eskom provoked public anger when it asked for the revised tariff increase, with the ruling party and trade union allies saying it will hurt the poor and the central bank expressing concern over the impact on inflation.
RATING REVIEW
The regulator had approved an increase of just over 14 percent for 2008/09. It will rule on the new request within the next three weeks.
The ANC and trade unions last week suggested price rises could be phased in over 5 years.
Eskom's ability to fund the programme has raised concerns among credit agencies, with Moody's on Tuesday putting the utility's ratings on review for a downgrade.
"The timing of the review by Moody's is regrettable given the progress made towards resolving the concerns raised by all rating agencies," Eskom said in a statement.
Standard & Poor's placed Eskom on creditwatch in January and Fitch changed its outlook to negative last year.
Maroga said Eskom was spending more than budgeted for on coal, partly through costly short term contracts, to increase stocks after low quality and wet coal in January forced it to reduce electricity supply.
It had spent an extra 5 billion rand in 2007/08 and would likely spend an additional 6 billion rand this financial year. About 25 percent of its purchases were short-term contracts.
Stocks at power plants had risen to about 17.4 days, nearing a target of 20 days, he said, adding there were no plans to divert export coal to Eskom.
The company announced in February it would buy an extra 45 million tonnes of coal over the next two years. It has sourced close to 40 million of those tonnes.
But Maroga warned that while conditions had improved, the system remained vulnerable and the reduction in demand had to be maintained over the coming southern hemisphere winter.
"At any given point we could lose a number of units ... we could do load shedding at any time, he said.
"The fact that we are not doing load shedding, the fact that we are relatively stable does not mean that the underlying vulnerability is gone."
