Six reasons why NERSA shouldn’t increase electricity tariffs
Economic Impact. The South African economy is in a far more vulnerable state than it was when NERSA made its most recent Multi Year Price Determination. Economic growth is stagnant, unemployment is increasing, inflation is accelerating and the currency is in decline. Our economy simply cannot withstand an additional shock from a sharp electricity price increase.
Tariff increases will kill jobs. The impact of tariff increases is particularly acute for small, medium and micro-sized enterprises (SMMEs) who have limited capacity to absorb higher costs. SMMEs are the driving force behind job creation in South Africa – any additional tariff increase will severely constrain their ability to do so and only serve to kill existing and future jobs.
Eskom is an ever expanding black hole. Eskom has received far above inflation tariff increases every year since 2003 such that electricity prices have effectively doubled in real terms since 2009. Despite these increases it has still failed to stabilise its financial position and requires constant government bailouts to stay afloat. This led to Standard & Poor’s reduction of Eskom’s credit rating to ‘speculative grade’, indicative of major structural challenges that can’t be addressed by merely raising tariffs.
Secrecy surrounding fuel contracts. A key measure of determining cost reflective tariffs is transparency in fuel contracts. Eskom still refuses to make critical information about its coal and diesel contracts available to the public. Speculation that Eskom is paying well in excess of the retail prices for its fuel in order to enrich well connected ANC cadres means that Eskom is being used as a piggy bank by the political elite, severely undermining any attempt at cost control.
Deception regarding tariff increases. Eskom makes the misleading claim that its request for an additional tariff increase stems predominantly from unforeseen fuel costs arising from the purchase of diesel to minimise load-shedding. Eskom’s reliance on diesel stems from mismanagement, cost over-runs, and delays in the construction of Medupi and Kusile. Not only are consumers being asked to fund the new build programme, they are being asked to pay for Eskom’s mismanagement.
Funding alternatives. The time has come for Eskom to seek funding from the private sector through the sale of an equity stake in Eskom. Such a stake will raise billions of rands, strengthen Eskom’s financial position, introduce skilled board members to the parastatal, and improve overall management of Eskom.