Sacci worries about Eskom hikes

Johannesburg - The South African Chamber of Commerce and Industry (Sacci) on Monday expressed concern over the potentially negative impact that implementation of a 35% year-on-year tariff increase Eskom had applied for would have on the South African economy.

In its comments on the multi-year tariff increase Eskom submitted to the National Energy Regulator of South Africa (Nersa), Sacci referred to the weighting of electricity in the consumer price index (CPI) of 1.87%.

"Assuming that municipalities pass on the full increase and adjust their own portion similarly there would be a pass through effect, where producers and retailers are forced to raise prices in response to higher cost bases.

"Sacci estimates that inflation is likely to be around 0.3% higher, pushing CPI to above the 3% to 6% target range," it said.

The chamber argued that it would reduce personal disposable incomes and therefore household consumption spending, before ultimately feeding through to GDP.

Disposable income would also be reduced through higher than otherwise interest rates and lower employment," Sacci said.

"Apart from the direct impact of lower consumer spending, the hikes would also negatively impact on GDP by reducing competitiveness and capital formation.

"In Sacci's estimate the overall direct loss to GDP would be around R150bn. The lower GDP and failing companies implies lower employment levels, with job losses approaching 500 000," it said.

Sacci proposed a number of suggestions relating to actions that the National Treasury could take, to interim pricing proposals and build, operate and transfer (BOT) projects, and a charter to improve governance.

"Sacci recommends that Eskom be granted an increase to tide it over 2010 with the implementation of a multi-year price determination (MYPD) being postponed until 2011. This will make it possible for stakeholder engagements to take place during 2010 with the objective of negotiating a secure and financially viable future for the industry without the concomitant adverse impacts on the economy that the current proposals will have," it said.

The group proposed a workshop of stakeholders to take place before Nersa makes its decision, where alternative solutions could be tabled and debated. This could be followed by in-depth consideration of any proposals.

- I-Net Bridge