South Africa

Eskom tariff compromise: Their loss, our loss

By Khadija Patel 1 March 2013

The National Energy Regulator of South Africa (Nersa) approved an 8% average increase per annum over the next five years for Eskom. The power utility had applied for a 16% per annum increase for five years, much to the consternation of opposition parties, business, trade unions and civil society. By KHADIJA PATEL.

There was some confusion in the streets of Pretoria on Thursday as police closed off a section of Madiba Street to allow the National Union of Metalworkers of South Africa (Numsa) to picket outside the offices of the National Energy Regulator of South Africa (Nersa). Holding aloft placards that decried the “privatisation” of electricity in South Africa, the small group of protesters made their voices heard inside the auditorium of the energy regulator.

Although there were not many protestors, their chants and songs often drowned out Nersa executives announcing their decision on Eskom’s application for a 16% price hike over five years.

After mulling over Eskom’s application, Nersa decided to allow Eskom total revenue of R906.6 billion over the next five years, which translates to an average annual increase of 8% in electricity tariffs.

Announcing the decision, Nersa chairwoman Cecilia Khuzwayo said it was “based on facts”. Nersa had reviewed Eskom’s submissions, listened to feedback from other stakeholders, done its own calculations and finally decided that an 8% tariff hike would suffice for Eskom to keep the lights on. Nersa electricity subcommittee chairman Thembani Bukula said the increase Nersa had approved was sufficient for Eskom to fulfil its obligations.

“Our function is not to run Eskom into the ground,” Bukula noted.

This, then, contradicts the facts and figures submitted by Eskom in its application – so now the question is whether Eskom exaggerated how much it would need in order to increase its profits, or whether Nersa was simply better at doing the maths.

General Secretary of NUMSA, Irvin Jim, was seated among the “stakeholders” at the announcement, but left to address Numsa members before the hearing concluded. He told Daily Maverick he had mixed feelings about the approval of an 8% tariff hike.

“We welcome the decision, but we are extremely concerned that the 8% falls far ahead of the rate of inflation, which is about 5.4%,” he said.

If Eskom had been granted the 16% hike it had requested, the current electricity price would have more than doubled, from 61 cents a kilowatt hour in 2012/13, to 128 cents a kWh in 2017/18. Now, electricity is projected to cost about 89 cents a kilowatt hour by 2018.

Eskom has previously claimed it needs a 16% increase to cover the costs of supplying the electricity needed to power South Africa as well as investing in infrastructure. The proposed increase, however, was met with criticism from political parties, trade unions, civil society and business – just about all South Africans.

Eskom has, meanwhile, been cautious in its response to Nersa’s announcement.

“We will have to study the decision in detail to understand its consequences and assess its impact,” the parastatal said in a statement Thursday afternoon.

Eskom had applied to Nersa for an average annual increase of 13% to cover its own needs over the next five years, plus 3% a year for independent power producers, translating to a total of 16% and proposed revenue of R1.1 trillion – certainly not small change.

The organisation insists the application was based on the current regulatory rules and policy, and represented what was absolutely necessary to keep the lights on.

“This provides for the prudent recovery of input costs such as coal, maintenance and human resources, as well as the cost of servicing the debt raised to finance Eskom’s investment in South Africa’s energy infrastructure,” an Eskom statement said.

The new tariffs will take effect for Eskom customers from 1 April 2013 and for municipal customers from 1 July 2013. The actual cost of electricity for consumers will, however, only be announced once Eskom has studied Nersa’s ruling.

Bukula noted that Eskom could use the courts to find redress.

Other South Africans have welcomed Nersa’s decision. The Western CAPE MEC (DA) for Finance, Economic Development and Tourism, Alan Winde, welcomed the announcement but warned that Eskom must secure alternative ways of producing electricity. He said in a statement: “While we understand that the country is experiencing a shortage of energy, as the entity responsible for the production of electricity in South Africa, Eskom needs to look at innovative ways of producing electricity, such as renewable energy.

“The price hike will hit the already over-burdened consumer and entrepreneurs operating in the small, medium and micro enterprise (SMME) sector the hardest. To prevent job losses, it is high time for Eskom to seek innovative solutions.”

Greenpeace believes greater investment in renewable energy is urgently required to transition South Africa to a low carbon economy, free from coal-power pollution and the dangers of nuclear power.

“[Nersa must] hold Eskom accountable for the utility’s continued investments in coal,” Greenpeace climate and energy campaigner Ruth Mhlanga said in a statement.

The organisation said the increase did not include the government’s new proposed carbon tax, or the negatives associated with coal-fired electricity generation, including its effect on health and water shortages.

“In addition, investing in nuclear [power], as proposed by the department of energy, would drive the price of electricity even higher than the figures included in Eskom’s tariff increase application.”

Experts warn that spikes in pricing, even at 8% per annum, can make electricity unaffordable for many, forcing people to under-consume or practise unsafe energy methods – which undermines potential benefits.

Others, meanwhile, believe Nersa’s decision does not bode well for the power supply situation in South Africa. They point out that electricity in South Africa is still among the cheapest in the world – and it is this anomaly in the pricing of electricity that has led to the power crisis. They argue that capital expansion cannot take place with an 8% rise in tariffs.

Only time will tell if Eskom can indeed keep the power going with an 8% price hike, but the impact of the new tariffs on real life for South Africans will soon be felt. And it is then that we will understand if South Africans themselves can afford to keep their own lights on. What cannot be denied is that there are still major disparities in electricity access and affordability in South Africa. And this latest price hike, despite it being a compromise on what Eskom initially asked for, may exacerbate these disparities. It is the poor communities, bearing the brunt of an economy with few jobs and an over-stretched state, that will suffer the most. 

It was apt that NUMSA members outside Nersa’s offices were holding a banner calling for reinstatement of NUM members who had lost their jobs at Lonmin in Marikana. With anticipation currently building for further job cuts at Lonmin in the coming weeks, it was in Marikana last year that we were reminded that for all the gains democracy has made in improving the lot of some, there are still many, many South Africans who eke out an existence on the fringe of formal society, without any of the amenities of water, sanitation, refuse removal, or indeed electricity.

An 8% hike of electricity tariffs still amounts to a rise in the cost of living, jeopardising jobs in struggling companies. DM

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Photo: Electricity pylons carry power from Cape Town’s Koeberg nuclear power plant July 17, 2009. REUTERS/Mike Hutchings


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