Will the litany of bad economic news ever end? The Gauteng High Court has ordered that Eskom can reap another R10-billion in the 2021/22 financial year, which means an effective increase in power prices of more than 15%.
Eskom’s woes translate into woes for the entire economy of South Africa. The state-run power utility’s inability to provide reliable power is a huge obstacle to investment, economic growth and job creation. Then there is the issue of soaring prices for its sputtering service. Prices are about to jump by more than 15% in the coming financial year, adding an additional cost burden to South African industry and consumers just when they are least able to absorb it.
“The National Energy Regulator of South Africa (Nersa) announced… that the High Court of South Africa (Gauteng Division) has ordered that an amount of R10-billion be added to Eskom’s allowable revenue to be recovered from tariff customers in the 2021/22 financial year,” Nersa said in a terse statement on Tuesday. Eskom has long complained that Nersa has awarded it lower increases than it had applied for, worsening a spiralling financial crisis.
The upshot is that “this will result in an average tariff percentage increase of 15.63% in the 2021/22 financial year”.
Inflation in December was running at 3.1%, so such an increase will effectively be five times the current inflation rate. Inflation remains muted against the backdrop of a fragile economy with an unemployment rate well above 40%, based on its most telling definition. But the South African Reserve Bank has warned that administered prices – which include power tariffs – are an upside risk to the inflation outlook. Petrol prices are also bubbling at the moment, with more increases foreseen at the pumps in the coming months.
So this has the potential to nip further interest rate cuts in the bud. Then there are the rising power costs to business at a time when one of the many pledges to come out of President Cyril Ramaphosa’s administration is to reduce the cost of doing business. That is not about to happen for power-intensive industries such as mining, manufacturing and large-scale commercial agriculture.
If there is a light at the end of this tunnel, it can’t be switched on, thanks to Eskom. BM
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Eskom works on a cost plus basis. There is no incentive on Management to contain costs. We are paying for years of mismanagement of a bloated, wasteful, operation. There will be no improvement until competent people are appointed in all positions and market related salaries are paid at all levels to run a lean, effective organisation. Customers that can pay are currently investigating methods to reduce power/go off-grid.
Eskom is in a death spiral on their current course.