By Paul Simao
South Africa's state power firm, under pressure from the ruling ANC party, agreed on Friday to phase in electricity price rises over five years instead of pushing for a sharp hike to address a dire power crisis.
Eskom, which produces about 95 percent of South Africa's electricity, provoked public anger when it asked for a revised 53-percent tariff increase. The African National Congress and union allies said that would hurt the poor and stoke inflation.
Regulators had approved an increase for Eskom of just over 14 percent for 2008/09.
Power cuts in January forced large gold and platinum mines to shut down for five days, pushing world precious metal prices higher. The mines are now operating at 90 to 95 percent of their normal electricity supply.
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"We agree on the need for price increases and that they should be smoothed out," Public Enterprises Minister Alec Erwin said at the end of an energy summit in Johannesburg that drew top officials from Eskom, government, the ANC and labour.
"It's going to be done over a five-year time period," Erwin said, adding that the price hikes, when approved by regulators, would be a shock for the economy.
Erwin was among a number of ministers in President Thabo Mbeki's cabinet who initially supported the utility's electricity price proposal as necessary to fund a 350 billion rand ($46.4 billion) infrastructure expansion.
They changed their tune in the face of opposition from the African National Congress and its labour and Communist allies.
Mbeki lost the leadership of the ruling party to rival Jacob Zuma late last year.
Zuma and other ANC and labour leaders argued that millions of South Africans would be unable to afford electricity if regulators approve Eskom's request. There are also fears it would fuel rising inflation, currently over 10 percent.
"We are convinced that the economy cannot afford that sharp increase in electricity prices," ANC Secretary General Gwede Mantashe said at the summit. He said it would be wrong for Eskom to use price rises to recover from past losses.
COMPROMISE
Eskom has blamed its problems on a combination of factors, including the failure of the government to invest in electricity generating plants, maintenance problems at its existing facilities and wet weather that affected coal supplies.
While maintaining that sharply increasing the cost of electricity would put it on a firmer footing, Eskom has said it is willing to look at other options.
Eskom CEO Jacob Maroga said that the 53-percent price increase was only one of five scenarios that were on the table.
"The final decision comes from the regulators," Maroga told reporters on Friday, describing the summit as a success.
He added that Eskom would meet with government and other stakeholders for further talks to shore up the utility's finances in the face of the crisis.
Eskom's management has played down hopes it could increase electricity supplies quickly and has asked that consumers be patient while it builds new generating capacity.
The utility said on Friday it had awarded a R2,9-billion rand contract to a consortium of local companies to construct the main civil works of its Medupi power station. The total cost of the project is around R80-billion rand.
"Medupi is one of the key installations in Eskom's New Build Programme that is geared towards closing the current supply-demand gap," Brian Dames, Eskom's chief officer for generation, said in a statement.
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