Johannesburg - The energy regulator said on Friday it has cut the increase in electricity rates for power utility Eskom to 16% for the 2012/13 financial year from a previously approved hike of 25.9%.
The decision follows Eskom’s application to reduce the hike after the utility was asked by the government to ease up on private and industrial consumers, who have been hit in recent years with soaring power costs.
Energy-intensive users, including South Africa’s vital mining industry, have long said that the steep hikes are making some of their operations unsustainable.
Cash-strapped Eskom has been struggling to raise the money it needs to build power plants fast to avoid a repeat of a crisis that forced mines to shut for days in 2008 and cost the economy billions in lost output.
The reduction will result in a revenue loss of R11.15bn, the regulator said.
Eskom, once one of the world’s lowest-cost electricity producers, was granted three years of 25% annual rises in power tariffs in 2010 and was expected to apply for two more similar hikes after that.
Only from 2016 were tariffs expected to rise in line with inflation, but President Jacob Zuma said in February he had asked Eskom to seek options to limit the increases in rates to ensure they would not stem economic growth.
“Our concern has been that a further electricity price hike would hurt the consumer significantly and because it’s been such an important part of the growth story in South Africa, we could then seen an effective slowdown in our economy,” said Kevin Lings, chief economist at Stanlib.
Eskom has been widely criticised for fuelling inflation.
Inflation breached the central bank’s 3-6% target in November and has been outside its target band since.
The bank expects inflation to remain outside the target band throughout 2012, peaking at 6.6% in the second quarter and moving back to within the band in the first quarter of 2013.