HomeIndustry SectorsFinance and PolicyAbove-inflation electricity increases look set to continue

Above-inflation electricity increases look set to continue

Medupi power
station “’ construction
Johannesburg, South Africa — 12 March 2012 – We now know that electricity prices will increase by 16% next month, and not by 25.9% as initially expected, but there is still no clear indication of how long South Africans will have to bear above-inflation increases in their electricity bills.

The National Energy Regulator of SA (NERSA) has announced that it has cut the tariff increase, after Eskom applied to reduce the hike. This followed requests by government to ease the pressure on private and industrial consumers who have been hard-hit by electricity price increases, says “Business Live”.

Public enterprises minister Malusi Gigaba said that the reduction in the tariff hike had been made possible by the government, as Eskom’s shareholder, deferring the receipt of a R8.1-billion return on investment; by improvements in Eskom’s financial position that have enabled it to save on capital expenditure; and by electricity demand forecasts being lower than predicted three years ago.

Next month’s increase will be the last of the second multi-year price determination (MYPD2) that Eskom applied for in 2009, and was approved by Nersa in 2010.

The South African economy suffered a blow in the first quarter of 2008, with extensive load shedding due to power shortages that hit mining and manufacturing operations and shaved an estimated 1-1.5% of economic growth in the quarter.

When Eskom initially applied for the second MYPD in 2009 it asked for three annual increases of 45%; then reduced it to three increases of 35%, before being awarded increases of 24.8% in 2010, 25.8% in 2011 and 25.9% this year. At the time Eskom said the increases were necessary to help it cover rising operational and capital costs, specifically with regard to construction of its coal-fired Medupi and Kusile power stations.

Eskom CEO Brian Dames said the lower tariff increase would not compromise Eskom’s financial viability, nor its ability to complete power stations on schedule, nor its ability to keep South Africa’s lights on.

Dames said Eskom would be proposing an extended price path for MYPD3, longer than the usual three-year period. According to Gigaba, this should enable Eskom to ask for lower price increases than had been envisaged, in return for price certainty over a longer period. Dames would not give any indication of the extent of future price increases but said Eskom’s proposal in this regard should be made public by the middle of the year.

Big price increases nevertheless look set to be the norm for some time to come. As Dames said, Eskom needs a transition to cost-reflective electricity tariffs. What exactly these tariffs will be depends on the decisions Eskom makes in terms of its investment, he added.

Source: “Business Live.” For further details click here.