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Price hikes good for SA?

In a recent interview with Jeannot Boussougouth, Frost and Sullivan energy and power research analyst by Bruce Whitfield on Cape Talk radio, the increase in Eskom’s tariffs were discussed.

Boussougouth feels that these increases may actually prove to be beneficial to South Africa, as they will make the country more attractive to independent power producers.

Eskom have asked for an 18% increase in electricity tariffs due to the amount of capital needed for the current upgrade and new generation capacity programme Eskom has embarked on.

Boussougouth contends "that the current tariff rate is not cost reflective which means that the long-term cost of increasing capacity is not reflected in the current tariff rate." He suggested that, despite the impact on household costs, there are positive effects for an increase in the current tariff.

"For instance independent power producers will be more attracted to this market and that will ease pressure on Eskom to meet growing electricity demand. You remember that the energy White Paper encouraged the entry of players into the generation market and that will also widen customer choice and at the same time you will look at that and say that well the project will be more bankable and an 18 percent increase when you compare that to the current tariff which is 18 per kilowatt hour it will still be one of the lowest." he added.

Boussougouth however also stated that the current R150 billion set aside for building additional capacity would most likely only prove sufficient for meeting South Africa’s needs up to 2010, and that additional tariff increases could then be necessary to meet growing demand.