Eskom price hike is ‘unsustainable’
The utility is being urged to move faster to reduce soaring energy costs, fix middleman corruption and reduce its bloated payroll
Any further increases in electricity tariffs bode ill for South Africa’s middle-income households already struggling with spiralling electricity prices that are “unsustainable” and “unconstitutional”, analysts have warned, after Eskom alluded to further looming double-digit price hikes for consumers.
So dire is the situation for some households that both poor and middle-income consumers are now resorting to tampering with electricity meters to secure power at no cost.
After the state power utility released financial results for the 2020-21 financial year on Tuesday, commentators said the parastatal had showed progress in paying off R81.9-billion of its debt and reducing it by 16.9% to R401.8-billion, but it needed to move faster to reduce soaring energy costs, fix middleman corruption and cut its bloated staff complement, which struggling consumers were effectively subsidising.
Presenting an overview of the financial results, Eskom group chief executive André de Ruyter noted that the parastatal had reported a 6.7% drop in demand for electricity and a rise in revenue to R204.3-billion due to an 8.76% tariff hike for the period. He said the “unprecedented” drop in electricity demand was largely due to dampened economic activity during the Covid-19 lockdown.
The National Energy Regulator of South Africa has approved a 15.06% Eskom tariff hike for 2022 and chief financial officer Calib Cassim said a “cost-reflective” tariff, often used by Eskom bosses as a pseudonym for double-digit hikes, would be needed in the next few years.
But analysts warned that the latest tariff hike, coming amid a declining electricity demand trajectory that had been ongoing for more than 13 years, was both “unsustainable” and “unconstitutional” given low wage increases and a legal provision limiting parastatals’ ability to hike prices above the inflation rate.
Economist Mike Schussler said middle-income households could no longer afford to pay for electricity, noting how in suburbs around Northcliff in Johannesburg, there had been reports of consumers illegally circumventing electricity meters.
He said an analysis of data from automated clearing house Bankservafrica, as well as household income from Statistics South Africa, showed that consumers were now spending between 8.3% and 18.1% of their take-home wages on electricity, while private pensioners were spending between 18% and 39% of their income on electricity.
Schussler said this was unsustainable and that consumers were being “squashed” as electricity prices had spiked by as much as 307% over the past 13 years, while other fixed costs such as medical insurance had risen 230%, followed by the local components in the petrol price, which rose 188%, water, which increased 180%, and school fees, which soared by 178%. He said Eskom needed to do more to improve its financial position and sustainability.
“Eskom definitely brought down the debt burden. It is managing money more carefully and managing its personnel costs better but its coal contracts need to be looked at. The coal prices [Eskom is paying] are up 300% in the last 12 years, whereas the export coal price is only up by 100%,” Schussler said, adding that Eskom, which has reduced its staff complement by 4.5 % to 42 749, should expedite culling its excessive payroll. According to the World Bank, Eskom should only have 15 000 employees.
“If you say you have 30% too much staff, don’t take three years to sort it out. I know they have unions but you can’t expect South Africans to pay these high salaries,” he said, adding that corruption at the state utility also needed to be fixed.
Eskom recorded R2-billion in irregular, fruitless and wasteful expenditure for the period (compared with R14.6-billion in 2020 and R7.4-billion in 2019), 50% of which Cassim said was due to the need to purchase diesel to run open cycle gas turbine power stations to limit loadshedding hours.
Energy analyst Ted Blom said intermediaries were escalating
Eskom’s costs as it was still paying prices for machinery parts that had been inflated by millions of rands. He added Eskom’s debt had effectively not been reduced by as much as R81.9-billion, but rather R65-billion or less, as it had benefited from a stronger rand, which had reduced its US dollar-based debt burden.
He said it was unacceptable that the utility was making a profit off the back of consumers, yet still reflecting a net loss after tax of R18.9-billion, due to corruption, inefficiency and mismanagement.
Eskom’s coal costs had increased by 11% although the parastatal had spent 3% less on coal because it had burned 15% less due to the lowered demand for the period. Blom said a move to renewable energy would be expensive at around R5 per kilowatthour because of the distribution costs, while the direct cost of coal was R1.45 per kwh.
Blom also questioned Eskom’s R165-billion price tag each for its Kusile and Medupi stations, wondering what had happened to the additional R200-billion initially earmarked for the newbuild projects.
“What did they spend the other R200-billion on? Because this adds to R320-billion, so if it is not interest, then someone has stolen R200billion,” Blom said. It would not be possible for Eskom to claw its way out of debt as it was now also facing a looming Constitutional Court challenge by ratepayers regarding its high electricity tariffs, he added.
“The constitution says the tariff increases are not allowed to be above [inflation] and it has been higher for more than 12 years now and Eskom needs to pay back more than R800-billion to consumers,” he said.
“Eskom is making a R5.8-billion operating profit but as a parastatal it should break even. It should not be profit-making for the government. For 100 years Eskom never ran as a profit-making entity and never had to call in a government guarantee.”
Pietermaritzburg Economic Justice and Advocacy Group researcher Julie Smith said electricity prices were crippling poor households and turning honest consumers into criminals.
“Electricity prices over the past several years have far exceeded the affordability thresholds of lowincome households, even middleincome households are now struggling. The problem is electricity is a non-negotiable expense. All SA staple food needs to be cooked. We need electricity for light, for warmth, for our appliances and very importantly, for security,” she said.
“Having electricity is a question of equity. If people cannot afford electricity and they can’t use as much as they need there is an element of extreme injustice.”
She said if people could not afford electricity they had to buy paraffin, which was expensive and dangerous, while gas was also expensive.
“Electricity affects the cost of all goods and services in the economy and so these rising electricity costs have a massive effect, across not only households, but also the South African economy. It will mean the cost of food and all goods and services will increase,” added Smith. “The problem is that we have not found a way to make electricity affordable to those who are financially constrained.”
Smith said the free 50kw per hour electricity was insufficient as average households used 400 to 450kwh of power per month. The implementation of an integrated block tariff, which would see those who can afford to pay more, such as corporates, cross-subsiding low-income households, was a possible solution.
“In most places the commercial tariff is much cheaper than the household tariff so there are mechanisms we can use to make sure electricity is more affordable, but municipalities don’t do that,” she said. “We are now in a situation where households really don’t have a choice. You are forced into a situation where you have to choose between putting food on the table or paying your electricity [bill].
“Many households will be forced to tamper with their meter boxes and they do this out of no malice. They are not revolutionaries, they are normal women who care for their children and are trying to make ends meet. The state is forcing people into illegality and that is dangerous because then it is easier to break other laws.”
The utility was making a profit, yet still reflecting a net loss after tax of R18.9-billion, due to corruption, inefficiency and mismanagement