HomeIndustry SectorsFinance and PolicyEskom must rethink business model, says industry analyst over tariff hikes

Eskom must rethink business model, says industry analyst over tariff hikes

South Africa can expect further electricity hikes of two to five per cent during the 2015/2016 financial year, following the National Energy Regulator of SA’s (Nersa) approval of the regulatory clearing account for Eskom, predicts Muneera Salie, industry analyst for Energy & Environment at consultancy Frost & Sullivan Africa.

Ms Salie says the clearing account adjustment was given in order to provide Eskom with an additional ZAR7.8 billion in revenue from its customers but in order to recover this amount, tariffs are likely to increase above the already granted 8 per cent increase. This translates to a tariff increase of between 10 and 13 per cent which is way above inflation.

Business hit by tariff increases

Salie says: “The question that remains is for how much longer the average consumer will be able to pay for, or afford, these tariff increases.

“It is also expected that businesses will suffer, with many companies already taking drastic measures in order to remain profitable.

Nersa has stated that the additional tariff increases have been granted to compensate for variances in the coal price, lower than expected sales revenue during 2010-2013, and differences in the actual inflation rate as opposed to that which was assumed when the original tariff of 8 per cent was determined.

Time to privatise?

Being a public company that monopolises the industry, Eskom’s business model allows them to be able to absorb under-recovery of revenue from their customers. “An increase in competition in the form of private sector companies into the industry would force Eskom to rethink their business model,” said Salie.

Tariff adjustments play a large part in the sustainability of the South African economy and this additional increase is unlikely to aid in economic growth, she says.

The announcement comes as the unemployment rate in South Africa has reached its highest level since 2008 at 25.5 percent confirmed Statistics SA last week.

Salie concludes: “The negative effect that these tariff increases are expected to have on local businesses is unlikely to improve the gloomy state of the employment rate in the country.”