FIRED UP: The steel and engineering industry has a strong base in East London and Port Elizabeth.Picture: Bloomberg
JOHANNESBURG - Electricity  price increases are among factors that will stifle the growth of the metals and engineering cluster, Steel and Engineering Industries Federation of South Africa (SEIFSA) told the National Energy Regulator of South Africa (Nersa) on Friday. 

Speaking at public hearings into Eskom's application to recover R66 billion for the 2014/15 to 2016/ 17 financial years, SEIFSA economist Marique Kruger on Friday said that the electricity price was a significant contributor to the total input costs basket of the metals and engineering cluster. She said frequent increases in electricity prices were not sustainable for businesses. 

Kruger sector the cluster, which accounts for 30 percent of South Africa's manufacturing output and 3.6 percent of Gross Domestic Product (GDP), was yet to recover to the pre-global financial and economic crises output levels. 

"Apart from transport costs, which are often exacerbated by energy costs, coal and energy costs represent up to 42 percent of the production costs of some large companies in the steel industry. Therefore, it is very important that electricity price increases are contained in order to reduce overall production costs, which may ultimately lead to mor enjoy losses and closure of strategic industries," said Kruger.

Kruger said SEIFSA was opposed to "any" electricity price increase. However, if an increase was completely necessary, a much lower percentage increase should be considered. She said the federation understood the need to ensure Eskom's financial sustainability. "However, Eskom's financial sustainability is inextricably linked to the financial sustainability of its customers, which need an affordable tariff to maintain sustainability..., she said.

Kruger said excessive prices would stifle Eskom's supply in the long term because energy intensive sectors would progressively cut down on demand and install their own generators to mitigate costs. 

"A further consequence will be the erosion of Eskom’s customer base as more users switch to the expanding pool of independent power producers, she said.

Meanwhile, energy analyst Ted Blom urged Nersa to reject Eskom's application. He said there was still rampant mismanagement and corruption at Eskom. He pointed to the contents of the 2016 Public Protector report into so-called state capture. He said any action taken in response to the report was tantamount to treating symptoms. "Where is the Dentons report?" he said, referring to a report by international law firm Dentons. The report detailed corruption, irregularities and flouting of National Treasury rules at Eskom. 

"That report fingered senior Eskom executives," said Blom.

- BUSINESS REPORT