Eskom Tariffs

EIUG says tariff hike will curtail economic recovery efforts

EIUG says tariff hike will curtail economic recovery efforts

17TH FEBRUARY 2021

BY: MARLENY ARNOLDI
CREAMER MEDIA ONLINE WRITER

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The Energy Intensive Users Group of Southern Africa (EIUG) has noted "with disappointment" the Eskom price increase announced on February 16.

The National Energy Regulator of South Africa (Nersa) has agreed to the State-owned power utility increasing its tariff by 15.6% for the 2021/22 financial year.

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An amount of 5.44c/kWh will be added to the average standard tariff, bringing the rate Eskom customers will have to pay to 134.3c/kWh and allowing Eskom to raise a further R10-billion in revenue.

The EIUG says energy is the engine for economic growth and development in the country and therefore necessitates reliable supply at acceptable quality and at competitive prices.

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The group elaborates that, prior to the Covid-19 pandemic and its devastating impact, the South African economy was fragile and stalling at levels incommensurate with the crucial development needs of the country, especially with regard to employment creation and poverty alleviation.

“It is our firm contention that a major contributor to the poor economic performance has been the ever-increasingly unreliable electricity supply and unpredictable electricity tariffs. The supply and tariff price path uncertainty has undermined our economic growth efforts and in turn has had a negative impact on retaining employment and creation of jobs which our country so desperately needs.

“These factors are likely to accelerate grid defection en masse by the remaining industrial users while growth investment will be redirected to host countries where energy-intensive users can find stable supply at predictable and competitive tariffs,” the EIUG states.

The group continues that, like the rest of the world economies, its members are busy coordinating and implementing efforts to recover from the devastating effects of the pandemic, only to be hit by this double-digit price increase.

“It is our view that such a huge price increase, and those on the horizon, will nullify opportunities for any meaningful recovery and will result in a prolonged economic recession long after the rest of the world recovers.

“What is even more worrying is that, although no announcement has been made on the increases for the next few years, Eskom has already pronounced it is pursuing multi-year double-digit increases.”

The group believes this electricity tariff increase will have a profoundly negative impact on economic growth, employment retention and "our competitiveness in international markets".

“It is also ironic that, in as much as the electricity consumers will be negatively affected by this increase, the consequence is that this will only accelerate Eskom’s own death spiral with ever declining sales and a growing cost base.

"The recent court challenges which Eskom has won are a sure indicator that there is still a long way before the electricity prices will settle to near inflation related rates, thereby further eroding investor confidence and stifling the appeal of South Africa as an investment destination,” the EIUG notes.

"We therefore call upon the government and all other stakeholders to urgently find a solution to Eskom’s operational and financial challenges. The electricity supply industry is in need of a dire reform executed with intent and speed equal to the crisis at hand. Special focus is needed on improving Eskom’s operational performance, internal cost efficiencies and collection of municipal debt.

“Nersa also must ensure that, as a country, we get to a point of having an electricity price path that is reasonably cost reflective, predictable and globally competitive. At the same time, government must fact-track progressive enabling policies and mechanisms to allow the private sector to generate power for own-use and aid in closing the national power supply deficit,” the EIUG suggests. 

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