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More gloom amid bigger electricity hikes

Aug 01 2014 13:51

Cape Town - An additional increase in electricity tariffs on top of the 8% already granted to Eskom is unlikely to aid economic growth, said Muneera Salie, industry analyst for energy and environment at Frost & Sullivan Africa.

Commenting on national energy regulator Nersa's announcement on Wednesday that it has approved an additional electricity tariff increase of between 2 to 5 percentage points for next year, she said tariff adjustments play a large part in the sustainability of the economy.

However, cash-strapped consumers and businesses will suffer, with many companies already taking drastic measures to stay afloat.

Eskom has increased tariffs by 8% over the past two years.

Nersa authorised Eskom to recover an additional R7.8bn in revenue from its customers from next April. This is less than the R18.3bn Eskom asked for as tighter cost controls are still pushed by Nersa.

Nersa stated that the additional tariff hikes have been granted to compensate for variances in the coal price, lower than expected sales revenue during 2010-2013, and differences in the actual inflation rate as opposed to that which was assumed when the original tariff of 8% was determined.

Salie said South Africans can now brace themselves for a tariff increase of between 10% and 13%, which is "way above inflation".

Assuming a 5 percentage point increase (a hike of 13% overall), this would add an additional 0.2 percentage points to the headline consumer price index from July print next year, said Nomura emerging markets economist Peter Attard Montalto.

Mike Schüssler of economists.co.za said Eskom would likely opt for the maximum increase of 13% because the "R7.8bn will add about 5% to Eskom's R144bn turnover".

He said if 13% is passed on, it would add 0.52% to inflation directly and about half of that indirectly. "It is therefore again more difficult to keep inflation within target."

Montalto said larger tariff increases are not in the SA Reserve Bank's (Sarb's) baseline, but they do feature in their risk skews on inflation. "As such, for us it plays into existing Sarb hawkishness."

On July 17 the Sarb increased interest rates by 0.25 basis points, citing a deteriorating growth outlook compounded by labour unrest.

Sarb governor Gill Marcus then revised the inflation outlook for 2014 to 6.3%.

Schüssler said with typical suburban households already paying about R1 200 per month for electricity , this would add about R155 per month to their bills.

"It would also make water and other items a little more expensive and fewer households will be able to afford electricity payments. They will again be forced to cut back."

Privatisation the answer

Salie said an increase in competition in the form of private sector companies into the industry would force Eskom to rethink their business model, because as a monopoly and public company Eskom’s business model allows it to absorb under-recovery of revenue from its customers.

"The question is for how much longer the average consumer will be able to pay for, or afford, these tariff increases," she said.

Salie also pointed out that currently, municipalities across the country owe Eskom about R3bn.

"Taxpayers that are paying their accounts every month might feel that they are being unfairly penalised by having to compensate for those customers that are defaulting on payments.

"Privatisation of the industry would allow Eskom to develop a more efficient system with a more accurate invoicing and debt collection system," she said.

The tariff increase announcement followed figures released by Statistics SA earlier this week that the unemployment rate in South Africa has reached its highest level since 2008 at 25.5%.

"The negative effect that these tariff increases are expected to have on local businesses is unlikely to improve the gloomy state of the employment rate in the country,” said Salie.

eskom  |  electricity  |  economy  |  energy
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