Banele Ginindza
LOAD shedding would increase electricity tariffs as Eskom was affected by selling less electricity and also having to use more diesel to meet efficiency capacity, National Energy Regulator of South Africa (Nersa) electricity regulation division executive manager Mbulelo Ncetezo said.
Addressing the Civil Society Conference on the Electricty Crises organised by the National Union of Metalworkers of SA at the Booysens Hotel yesterday, Ncetezo said Eskom had already used up five years worth of diesel stock in one year because production efficiency often went below the recommended efficiency level of 82 percent, down to as low as 74 percent.
He said that using what were termed OCGTs, which are diesel-powered generators, translated to costs as high as R3 per kilowatt-hour compared with 70c for coal.
“This application we are dealing with now is mostly about these OCGTs that are using diesel. To show you how they (Eskom) were off in terms of their own assumptions, in the first year of MYPD 3 (the third multiyear price determination) they said we will need R12 billion (of diesel) something like that for the whole five years. On the first year of the MYPD 3, they have used R10.5bn, they almost exhausted all the amount they wanted for the five years.
“It is easier to see why, because if their performance is no longer 82 percent, its down to 74 percent and sometimes less, they have to use more diesel now, which can be expensive,” Ncetezo said.
He said with the frequent load shedding, Eskom was losing revenue while its supply costs stayed constant.
Nceteza also warned that the stealing of electricity sabotaged good payers because Eskom received less revenue for the same costs of supply.
Meanwhile, Investec yesterday warned that South Africa’s economic growth could be weak in the second and third quarters – close to 2 percent year on year – following a decline in April in both electricity consumption and production, which fell 4.7 percent year on year and 2.4 percent respectively owing to contraction in manufacturing.
Investec economist Annabel Bishop said the decline tied in with the purchasing manager index (PMI) reading for that month, of 45.4, which indicated a contraction in manufacturing output from March to April.
“This occurred on load shedding and the reduction in the number of work days in April due to the timing and the configuration of the public holidays. The PMI recovered in May to 50.4, indicating little increase or decrease in manufacturing production,” she said.
She said the Reserve Bank had said that “electricity prices have the potential to shock” the inflation rate, pushing it 0.1 percentage points higher to 5 percent this year and 0.4 percentage points up to 6.5 percent next year, from the current forecast of 4.9 percent this year and 6.1 percent for next year.
She noted a warning from the Reserve Bank that, with a 25.3 percent year-on-year tariff increase, inflation breached the target ceiling for four quarters, peaking at 7.4 percent in the first quarter of next year, compared with 6.8 percent in the baseline.
Most of the impact on inflation is through the direct effects of electricity prices, which make up 4.13 percent of the inflation basket
The Reserve Bank has said it will increase interest rates fairly soon, despite the weak nature of economic growth.
Bishop expected an increase of 25 basis points next month.
Bishop said the rand weakness and higher electricity and oil prices were all exogenous factors driving up inflation, and so an interest rate hike was not warranted from these sources, without substantial second round effects. Higher interest rates only affected demand-led price pressures directly, and would not affect electricity or global oil prices, while demand price pressures were already low.