Pricey power 'may court collapse'

Johannesburg - South Africa's economy may shed half a million jobs if Eskom's proposed tariff hikes are granted, according to the country's main chambers of business.

In a written submission to energy regulator Nersa, Business Unity SA (Busa) said the economy could "collapse" should the energy regulator approve Eskom's requested 35% tariff increase per annum for three years.

Busa urged Nersa to grant companies more time to prepare for steep electricity price hikes.

"The process should proceed with stealth in order for these industries to have time to adjust. To do otherwise is to court a collapse of many industries crucial to the South African economy," said Busa, adding that numerous firms stand to lose the competitive edge they enjoyed when South African energy costs were substantially lower than elsewhere.

Peggy Drodskie, director of policy and advocacy at the South African Chamber of Commerce and Industry (Sacci), said the proposed hikes will have a negative effect on employment, inflation, investor sentiment and output.

"What we calculated was an additional 0.3 percentage points to inflation and that 500 000 jobs will be lost if the proposal is passed by Nersa," said Drodskie. "We fear there will be far less disposable income."

Busa said: "Several analyses suggest that increasing tariffs will result in increases between 0.5% to 1% in CPI [consumer price index]," adding the gold mining industry alone could lose 160 000 jobs.

Both parties believe Eskom requires an increase to fund a significant capital investment programme, the budget of which is stated to be R385bn. However, they suggest smaller price rises, and other cost reduction strategies shown to be viable.

"We suggest that Eskom be provided a reasonable increase that's inflation related," Drodskie said. Busa suggested price hikes of 25% per annum for two years, with a 22.5% increase in the third year.

A R60bn subordinated loan for expansion plans has already been made available to Eskom by government, which has also issued guarantees of R176bn to facilitate access to debt.

A smaller tariff rise - combined with other measures such as agreements with independent power producers, the implementation of an energy conservation scheme and a national solar water heater scheme - is a better alternative, according to both business chambers.

- Fin24.com