Now Eskom seeks extra hike — this time 60%!

Mathabo le Roux and Siseko Njobeni, Business Day, Johannesburg, 19 March 2008

Power utility Eskom has asked the National Energy Regulator of SA (Nersa) for a nominal 60% hike in electricity tariffs, which could put further pressure on inflation and interest rates. If granted, the increase will replace the 14,2% hike Eskom was allowed by the regulator in December. Nersa’s regulator of electricity, Thembani Bukula, confirmed yesterday the request had been filed.

Eskom’s motivations for the additional tariff hike were the increase of primary energy costs and accelerated demand side management costs.

Eskom’s requested tariff increase would apply only to electricity generated by Eskom. Municipalities are likely to also increase the price for distribution, which, if inflation-related, could see power costs soar almost 70%.

If the hike is granted it would also wipe out SA’s global advantage as the investment destination with the cheapest power, bringing prices in line with the nearest price rival, Canada.

Asked if Nersa would consider Eskom’s application, seeing that the regulator had already concluded this year’s price determination, Bukula said, “As regulator we have to consider their request. We have been told that this is urgent. We are already in the process of analysing the application and putting together a consultation paper to engage those who would be affected, which I guess is all of us.”

Bukula said the evaluation of public comments would be followed by a public hearing. The outcome was likely to be known within three months.

Eskom spokesman Ra’eesah Waja confirmed the utility had submitted its proposal to Nersa yesterday but she would not be drawn on details. “We are following a due process in terms of the application for the tariff increase. It is not for us to say that. The regulator will have a public session where they can announce the increase that we have requested,” she said.

Increases in the tariffs would not affect industrial customers, who have long-term contracts with the utility. “Those contracts are intact,” Waja said.

The hikes could have positive consequences, Eskom CE Jacob Maroga said, including a change in consumer behaviour.

Eskom said last month that it would approach the regulator for a further price hike, noting steep increases in the price of coal, and the utility’s need to supplement its coal stockpiles by as much as 45-million tons over the next two years.

But the price escalation of Eskom’s build programme, which will now cost R300bn over the next five years and is estimated to reach R1-trillion over 20 years, also means that low electricity prices in SA are unsustainable.

While there has been reluctance to allow double-digit tariff hikes because of inflation implications, the state and the regulator have recently softened their stance.

Eskom was probably emboldened by admissions from President Thabo Mbeki in his state of the nation speech and comments in the budget statement that the era of cheap power in SA was over.

The budget review estimates that the marginal cost of producing power will rise to 43c/kWh by 2011, and says that power prices should rise by 15c/kWh to reflect the future cost of supplying additional electricity. This translated into a 75% price increase, although the treasury did not provide a timeframe for the hike.

With cost pressures already weighing on inflation, economist Colen Garrow said Eskom’s request could be “one push too far”.

“The question is how the Reserve Bank will react. This will put pressure on inflation targets and the Bank may be tempted to put up rates again. This will be another nail in the coffin of consumers.”

Business Unity South Africa (Busa) economist Simi Siwisa said the priority for the organisation was security of supply.

“We accept that pricing might have to be reviewed in the context of the current challenges and Eskom’s funding requirements. South Africans must choose between availability and non-availability of electricity. It is clear that the cost of non-availability of power exceeds availability at slightly higher prices,” she said.

Busa would make an official statement later, she said.


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