The controversial R54 billion settlement reached in secret in July between Eskom and the energy regulator Nersa, which consumers would have had to pay through further electricity tariff increases, will not be made an order of the court.
The ruling was handed down by the High Court in Pretoria on Sunday (21 December). It remitted the matter to Nersa and ordered it to consult the public before making a final determination.
The court found that Nersa had never accurately determined the amount due to Eskom, following errors it made in the allowable revenue for its generation division. It was merely a compromise.
The matter stems from a decision announced by Nersa on 30 January to determine Eskom’s allowable revenue for the current financial year, as well as for 2026/27 and 2027/28.
Nersa approved total revenue of R384 billion for Eskom in 2025/26, R409 billion in 2026/27, and R436 billion in 2027/28.
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After Nersa published the reasons for its decisions in June, Eskom challenged it in court, claiming it was entitled to an additional R107 billion due to mistakes made by Nersa. It asked the court to set the decision aside in relation to the two outer years and remit the decision back to Nersa so that it could be rectified.
The mistakes pertained to the value of Eskom’s regulatory asset base (RAB) and depreciation.
Nersa did not oppose the application and did not file a record. It entered discussions with Eskom in July.
At those negotiations, the regulator held that the shortfall was R44 billion, while Eskom insisted on R62 billion. Eventually the two parties settled on R54 billion.
The settlement would only have legal force once made an order of the court.
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If the court confirmed it, it would have resulted in:
- An additional 3.4 percentage points average tariff increase in 2026/27, bringing the total tariff increase to 8.76% instead of the 5.36% announced in January;
- An additional 2.63 percentage points in 2027/28, meaning the tariffs will increase by 8.83% instead of the 6.19% announced in January; and
- Further increases in later years.
The court application and negotiations took place out of the public eye, with Nersa, whose meetings are as a rule open to the public, purposefully dealing with the matter behind closed doors.
The settlement only came to light after Moneyweb disclosed its existence in August, and Nersa thereafter confirmed the amount.
AfriForum and Minerals Council SA then applied to intervene in the court process. Both parties asked the court to decline the confirmation of the settlement and remit the decision to Nersa. Eskom and Nersa both opposed this and wanted the settlement to made an order of court.
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The court heard the matter on an urgent basis on 10 December, and since all parties agreed that the initial tariff decision was flawed, the court only had to decide the remedy.
In its ruling, the court emphasised the legislated requirement that “every decision of the energy regulator must be in writing and must be consistent with the Constitution and all applicable laws” and procedurally fair, with affected persons having been given an opportunity to submit their views and present relevant facts.
It further referred to case law that settlements “must accord with both the Constitution and the law”. Also, they must not be at odds with public policy.
The court agreed with AfriForum and Minerals Council SA’s objection that the decision to settle – which affects the whole nation – was taken without any public participation and concluded that that is “clearly contrary to public policy”.
The court further found that at least part of the reason Nersa settled with Eskom was self-serving and improper. The regulator was embarrassed by its mistakes and tried to keep the matter under wraps.
In its own Reasons for Decision, the regulator stated a settlement “does not enable the ventilation of the details in open court, which may expose Nersa further”.
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It also sought to avoid a decision by the court that it might not suit it and bind it in the future.
“If the settlement agreement were to be made an order of court, it would be given legitimacy on an agreement reached, albeit partially, for improper reasons,” the court found.
Nersa will now have to redetermine the additional amount Eskom is entitled to following its mistakes, and it must provide the public an opportunity to give input into its decision.
It is not yet clear what the timelines will be for this process.
The same court ruled in November that Nersa must notify municipalities of Eskom’s bulk tariffs for the next year by 31 January, and it is unlikely that Eskom and Nersa will be able to finalise the redetermination and Eskom’s tariffs before then.
Eskom therefore runs the risk that its recovery of the amount Nersa eventually decides on may be delayed by another year.
This article was republished from Moneyweb. Read the original here.
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