Eskom will decide by the middle of this year on the quantum of the increase it will request from the National Energy Regulator of SA (Nersa), according to spokeswoman Hillary Joffe. Two years ago Nersa sanctioned three successive annual increases of about 25 percent. And it indicated a possible further 25 percent increase for 2013/14 followed by 6 percent the following year.
Eskom’s massive tariff hikes, which have been driving inflation for more than three years, could continue, Cornelis van der Waal said yesterday. The business unit leader at Frost & Sullivan said that Eskom was likely to ask for a further increase of 30 percent when the present determination period ends in the middle of next year. And he said Nersa was likely to agree to a figure between 20 percent and 25 percent.
Azar Jammine, the chief economist of Econometrix, said further investment in Eskom’s capacity was essential if it was to continue to generate enough electricity to meet demand. But he said it could provide for its future capital expenditure with an increase of only 3 to 5 percentage points above the inflation rate. This would put the appropriate increase at between 8 percent and 10 percent in the next determination period.
Joffe said that, before submitting a proposal to Nersa, Eskom would consult stakeholders, including the Department of Public Enterprises, the SA Local Government Association (Salga) and the Treasury, as well as labour and business.
Reserve Bank governor Gill Marcus noted last week that electricity inflation was at 17 percent a year and questioned the need for future hikes “significantly” above overall inflation – which is now just over 6 percent.
Jammine said the fact that electricity inflation was running at only 17 percent was an indication that some consumers paid less than the determined price set by Nersa.
But even that level is too high and Marcus noted that high electricity and other administered prices had inhibited economic growth.
They have also played a major role in driving consumer inflation through the ceiling of the bank’s 3 percent to 6 percent target range. If inflation had not breached the ceiling, South Africans would probably have benefited from a further rate cut. The bank’s repo rate has been on hold at 5.5 percent for more than a year.
When deciding on the hike it would propose, Eskom would take into account the impact on inflation and growth, Joffe said.
The state-owned utility is suffering from a failure of foresight on the part of the government in the late 1990s. Uncertain whether or not to privatise Eskom, the government ignored a warning from the power producer that further investment was needed. At the same time, it used cheap electricity as an inducement to foreign and local investors to set up operations such as aluminium smelting.
Problems came to a head with widespread outages in January 2008. To fund its expansion plans Eskom was granted an increase of 27.5 percent in 2008, triggering a month-on-month increase of 22.7 percent in electricity inflation in July 2008, according to Statistics SA. This was followed by a 31.3 percent increase in tariffs in 2009, creating month-on-month electricity inflation of 21.5 percent in July of that year. - Ethel Hazelhurst