File photo: Dean Hutton/Bloomberg.

Johannesburg - South African power utility Eskom's latest pay hike offer could lead the cash-strapped power utility into deeper cost cuts, the state-owned firm said on Thursday.

Eskom confirmed that it had offered to pay 7 percent more to all blue-collar workers, upping its offer from 5.75 percent, during negotiations with workers represented by the National Union of Mineworkers (NUM) on this week.

Eskom's spokesman Khulu Phasiwe said the energy regulator had recommended in 2012 that it links wage raises to inflation.

The present offer by the utility is above inflation, which stands at 6.1 percent.

“The 7 percent offer we have in place is beyond what the regulator indicated to us, the regulator had given us a type of benchmark for inflation-linked increases,” he said.

“Now that we exceeded by at least one percent point, we will have to make deeper cuts elsewhere so that we don't affect our financial liquidity negatively,” Phasiwe said.

Eskom plans to reduce costs by R61 billion over the next three years, Phasiwe said, adding that the company has already cut back on travel and some of its executives were no longer flying first class. He said the firm would look for new areas to cut costs but did not elaborate.

Eskom, which provides virtually all of the electricity in Africa's most industrialised country, faced a crippling cash crunch last year that prompted an R80 billion injection by the government.

NUM has said it would seek the views of its members on the latest pay increase. The union had initially demanded a 15 percent raise for its lowest paid members and a 13 percent raise for its highest paid staff.

Reuters