5 November 2007 – Jac Laubscher, Sanlam group economist said recently that the government should contribute toward Eskom’s capital investment programme, instead of allowing tariff increases to finance the programme.

Presenting their views to a parliamentary finance committee, Laubscher, Industrial Development Corporation economist Lumkile Mondi and Rand Merchant Bank economist Rudolph Gouws said that tariff increases would fuel inflation.

According to Laubscher, the 18% increase proposed by Eskom would have a 0.7% effect on inflation.

Laubscher said the appropriate thing for the government to do was inject capital into Eskom. He continued that no commercial enterprise would be able to fund expansion by increasing tariffs, unless it was a monopoly.

"Surely you cannot ask customers to inject equity into the business they will not get the benefit of that," Laubscher said.

He also advised against loan capital due to the negative effect it would have on Eskom’s credit rating.

"It is not a question of affordability. The fiscal ratios look good and will improve further so the capacity is there to assist Eskom.

"Eskom is being treated differently from other state owned enterprises."

While tariffs were too low, Laubscher felt that substantial increases would apply a shock to the economy.

"At minimum, government should intervene to smooth out the increase in the cost of energy that will have to come," he said.

The treasury has revised its inflation forecast to 5.4%, up from 4.7%, however, Laubscher believes inflation will be higher at 5.9% due to food and oil price trends globally. He said the inflation target band should be between 5% – 8%.

Also raising concern over the effect of tariff increases on inflation was Reserve Bank Governor, Tito Mboweni.