Cape Town - South Africa's power utility Eskom has recommended a gradual increase in electricity tariffs as the best option to protect the economy and customers, its new tariff hike application said.
The proposal was one of two options submitted by Eskom and is based on an average yearly tariff increase of 22c per kilowatt hour over three years.
"Eskom recommends that the smoothing option be considered as it mitigates the impact of price increases on customers and the economy and it provides for a more sustainable long-term solution," Eskom said in its application, a copy of which was obtained by Reuters on Wednesday.
Eskom has said it requires the tariff increases to help fund an ambitious R385bn expansion plan to meet fast-rising demand in Africa's biggest economy.
The utility has been rationing electricity since early 2008 when the national grid nearly collapased, forcing mines and smelters to shut and costing South Africa billions of dollars.
"The consumer, industry and economy are going to get hit very hard... we are looking at over a 150% increase over the next three years and no economy in the world gets away with this and has a normal growth, employment or inflation," said a Johannesburg-based economist, who declined to named.
South Africa has been cushioned by one of the world's cheapest tariffs, but the utility and the energy industry agree that the price of electricity needs to rise substantially.
Eskom said a phased-in approach would result in a cash shortfall of R63.2bn for the 2010 to 2013 period.
The utility has said in the past it would rely on a rise in tariffs, borrowings and government loans to pay for its growth.
Expansion curbs
So far means to raise funds in the international markets have been limited owing to the global financial crisis.
"In the event that appropriate alternatives are not found there would be no option but to re-phase the capital expansion programme... This would impact the schedule of certain capital expansion projects and would also result in an increase in security of supply risks," it said.
Under another option, Eskom proposed the unit cost would rise by 146% in the first year, reaching 88c/KWh in real terms by 2014/15.
"It is acknowledged that such a significant correction in one year may have a severe impact on customers and the economy," Eskom said in the application, which was submitted to the national energy regulator at the end of September.
The energy regulator is expected to rule on the new tariffs by April next year, after extensive public hearings.
The regulator granted Eskom a 27% hike last year and a 31.3% rise again this year, fuelling inflation fears.
- Reuters