Nersa grants Eskom a 13.8% rise in tariffs from April 1

SOUTH Africa faces the spectre of electricity prices rising by 13.8 percent from April 1 after the National Energy Regulator (Nersa) yesterday granted Eskom the right to increase power prices, albeit below what the power utility requested.

Eskom’s financial and functional failures are widely seen as the biggest single risk to the South African economy and are a corrosive source of uncertainty for business.

Nersa granted a tariff increase of 9.41 percent, 8.1 percent and 5.2 percent for the next three financial years, 2019/20; 2020/21 and 2021/22, which is in addition to a 4.4 percentage-point hike approved last year, taking the increase up to 13.8 percent this year, which is below what Eskom had requested. Eskom had asked for price increases of 17.1 percent, 15.4 percent and 15.5 percent over the next three years in its multi-year price determination application submitted last year.

“The underpinning principle of the application was the need to ensure Eskom’s financial sustainability to enable it to fulfil its mandate to supply electricity to the country,” said Calib Cassim, Eskom’s chief financial officer.

Eskom’s debts, which are more than 20 times larger than those of SA Airways, reached 8.5 percent of gross domestic product late last year.

The government already guarantees R350 billion out of Eskom’s R420bn debt. The power utility has previously warned that its debt will reach R600bn should Nersa fail to implement its proposals. However, energy expert Chris Yelland observed yesterday that there were still two pending court appeals by Eskom on prior tariffs increases that had been granted below what had been applied for. “If the courts agree with Eskom, they are likely to send the decision back to Nersa for review. As it is we have to wait and see if Eskom will appeal the tariffs granted yesterday, which are below what they had applied for,” Yelland said.

The Energy Intensive Users Group (Eiug) said these increases were higher than inflation. “Industry is taking strain over tariffs, but we recognise that we need to carry some burden. We expect Eskom to work on executing the turnaround programme and to drive costs efficiencies over this period,” Eiug’s Shaun Nel said.

In a note on electricity production since January this year, Investec Asset Management’s Lara Hodes said although not as steep as anticipated, the increase would still put further pressure on the already constrained consumer, with job cuts a possibility as electricity intensive industries struggled to cope with elevated input costs.

Investec reported that electricity production continued to slide in January, slipping by negative 2.1 percent year-on-year, following December’s negative 1.6 percent y/y dip, with recent rotational load shedding likely to cause this trend to continue during the first quarter of the current year.

“Additionally, electricity distributed remained flat in January on a year-on-year basis, with muted levels of demand continuing to suppress domestic activity, undermining electricity consumption in South Africa,” Hodes said.