Nersa tells Eskom to take half a hike

INL SA

28/02/2012 Members of Cosatu, Samwu protest outside Nersa offices in Pretoria while a media briefing was underway on Eskom's proposed new electricity prices in Pretoria. Picture: Phill Magakoe

Dineo Faku

The decision by the National Energy Regulator of SA (Nersa) to give Eskom an average 8 percent increase in electricity tariffs for each of the next five years was good for containing costs in the short term, experts said yesterday.

Business and labour unions commended Nersa for granting only half of Eskom’s proposed tariff hike, but they were concerned that the increase remained above inflation rate. Consumer inflation is forecast to be 5.6 percent this year and 5.5 percent next year.

Nersa said the increase would allow Eskom R906.6 billion in additional revenue over the next five years and average electricity prices would rise to 65.51c a kilowatt-hour (kWh) in the 2013/14 financial year and 89.13c/kWh in 2018.

The regulator said the decision on the increase was made against the backdrop of a tough international and local economic environment.

“Our challenge… has been, and still remains, regulating the energy sector in a manner that balances the interests of energy producers on one hand and consumers on the other hand,” Thembani Bukula, the Nersa chairman, said in Pretoria yesterday.

Eskom applied for annual 16 percent year-on-year increases in its third multi-year price determination period starting next month and ending in March 2018. This application was opposed by business, labour unions and NGOs during public hearings.

The proposed 16 percent increases would have had devastating implications, as electricity costs were expected to soar 46 percent between last year and 2017, Chamber of Mines president Mark Cutifani said in a statement yesterday.

“The platinum and gold mining industries alone will face an extra R860 million in electricity costs in 2013 assuming a price increase of 8 percent,” he said.

“This remains a critical challenge for the mining sector where some 50 percent of the platinum mining industry and 37 percent of the gold mining industry were loss-making last year, and continued upward pressure on costs will further challenge the sector.”

Coenraad Bezuidenhout, the Manufacturing Circle’s executive director, said while the organisation welcomed the lower 8 percent increase in Eskom tariffs, manufacturers were disappointed that Wednesday’s Budget speech had been silent on the impact of electricity cost increases on the competitiveness of South African manufacturers and any measures to assist them.

Local manufacturers operated in a context where electricity prices in the Bric countries – namely Brazil, Russia, India and China – have been dramatically cut by up to 30 percent.

Rising power costs not only added to the costs of large industry, but severely squeezed the margins of smaller manufacturers and hampered their ability to mitigate risk and retain staff, Bezuidenhout said.

Cosatu said it cautiously welcomed the decision.

“The 8 percent is, however, well above Cosatu’s demand for increases linked to the rate of inflation, which currently stands at 5.4 percent.

“It still amounts to a rise in the cost of living and could still jeopardise jobs in struggling companies,” Patrick Craven, Cosatu’s spokesman, said.

He added that Cosatu would check the percentages municipalities were going to charge on top of the 8 percent hike, which would probably mean that thousands of consumers would face increases well above that amount.

Eskom defended its application saying: “The application was based on the current regulatory rules and policy, and Eskom’s mandate to keep the lights on.”

Eskom said its 16 percent application comprised an average annual increase of 13 percent to cover its own requirements over the next five years, and 3 percent a year for independent power producers, giving a total proposed revenue of R1.1 trillion.

The new tariffs are expected from April 1 for Eskom customers and for municipal customers from July 1. page 16