The typical quality of conservation around electricity prices in South Africa is so low as to be worthless. Cry after cry about it being “unfair” or “it will drive inflation” or any number of issues, while all the time disregarding that if Eskom doesn’t make money, we pay for it through taxes in any case. It’s become so frustrating and, frankly, boring that I haven’t blogged much about it in a while.
Until I read this article summarising Brian Kantor’s evaluation of the return on assets Eskom is achieving compared to international norms and how low their gearing is becoming compared to international norms for an ultra-low risk business. Both of these elements work in the same direction. Higher gearing will result in a higher return on shareholder equity for the same return on assets, and a lower hurdle rate for return on equity will allow for a lower return on assets which will then require less profit to achieve.
The view presented here is that Eskom is trying to make too much money and simply charging too much as a result. I hope this gets a lot more air-time.
