Africa-Press – Eswatini. The introduction of Value Added Tax (VAT) on electricity for commercial entities has created a new cost of up to E214 million for Eswatini Electricity Company (EEC).
This was disclosed in the tariff application where EEC requested for a revenue requirement of E2.9 billion for the financial year 2023/24 and a revenue requirement of E3.4 billion for the financial year 2024/25. This translates to an average tariff increase of 21.31 per cent (excluding the electrification access fund levy and Value Added Tax – VAT) for each of the financial years 2023/24 and 2024/25.
“It is worth noting that with the introduction of VAT on electricity for non-domestic customers, EEC is now expected to pay VAT on electricity imports for the domestic customers’ portion that does not attract VAT.
About 93 per cent of our customers are domestic hence their portion of electricity purchases now attracts VAT. Within the application this now translate to a new cost for EEC of approximately E97 million in 2023/24 and E117 million in 2024/25,” reads the application in part.
The 15 per cent Value Added Tax (VAT) on electricity tariffs started being charged on commercial entities at the beginning of September. This followed amendments into the VAT Act of 2011.
Ammendments
This follows amendments into VAT Act of 2011 which came into effect fon September 1.
Based on EEC’s proposed tariff increase approach, the company explained that their cost of sales accounts for 62 per cent of overall revenue requirement in 2023/24 and 63 per cent in 2024/25.
It was mentioned that this had been derived from units they intend to purchase.
“Year on year, we anticipate our cost of sales to increase overall by 14 per cent in 2023/24 and increase by 14 per cent in 2024/25.
“EEC has assumed a 15 per cent increase for Eskom for 2023/24 and a 15 per cent increase for 2024/25,” it was disclosed.
The utility company promised that it would continue buying power with Electricidade De Mozambique (EDM) to positively optimize trading.
It was stated that EEC was now billed in Rands by EDM which was equivalent to the Lilangeni, therefore avoiding adverse Dollar/ Lilangeni exchange rates. EEC acknowledged that local power production from Ubombo Sugar Limited (USL) would also play a role on the power trade optimisation to avoid Eskom’s peak demand which in turn increases the electricity tariff to EEC.
The company said the USL price escalation had been assumed at six per cent for each of the years being applied for. “This justifies that our proposed purchasing mix is beneficial for our customers,” EEC emphasised.
Excluding the cost of sales, it was explained that the generation revenue requirement was E159 million for 2023/24 and E142 million for 2024/25 (12 per cent increase in 2023/24 and a 10 per cent reduction in 2024/25).
“This accounts for five per cent of the total revenue requirement in 2023/24 and four per cent in 2024/25. Overall, the generation costs show huge fluctuations mainly as a result of the Mkinkomo dredging exercise and planned implementation of strategic initiatives under generation,” EEC said.
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