Johannesburg - Power utility Eskom's proposed 45% tariff increase will retard economic recovery and add pressure to inflation, while hitting small businesses and poor consumers the hardest, critics have said.
"This [45% tariff hike] lends more weight against much speedier economic recovery," said Brait economist Colen Garrow. He added that the recovery would not be as robust as was needed.
The increase would inflict further damage on manufacturing capacity, resulting in more job losses. "Plans to create jobs are now being jeopardised." The manufacturing sector accounts for about 14.6% of gross domestic product (GDP), down from about 24% less than 10 years ago.
Garrow said the hike would also add about 0.4% to consumer price inflation per year over the next three years.
"That means interest rate cuts may be on hold over this and the cycle of monetary easing might be over," said Garrow. He said this is an administered price that both the consumer and the SA Reserve Bank have no control over.
However, Garrow did admit Eskom had no alternative. "It's a necessary evil," he said.
Trade federation Cosatu said it would "vigorously" oppose the proposed tariff increase as it would hit small businesses and the poor the hardest.
"This will be the final straw to the economy," said Cosatu spokesperson Patrick Craven. "This proposed increase flies in the face of government's efforts to create decent work through small and medium businesses, many of which will be unable to survive such increases year after year."
Craven said that instead of a high tariff increase, government and big users of electricity should carry the cost of Eskom's capital expenditure.
"The government can levy a special tax for electricity and it can also assist with guarantees for the money needed," said Craven. He said a special levy was more desirable, as it would be a progressive form of tax that would cost the "rich and big users" more, while shielding the poor.
The Democratic Alliance (DA) has described the tariff application as "a gross insult to vulnerable South Africans", according to press agency Sapa.
"The South African public is now carrying the cost of the ANC government's mismanagement," said DA shadow minister of energy Sejamothopo Motau.
"Eskom, a key utility, central to the lives of all South Africans, has been systematically reduced to an institution that operates on the red line every day. That is not the public's fault."
- Fin24.com