South Africa May Permit 2015 Power-Price Increases Beyond 8%

South Africa’s energy regulator may tell Eskom Holdings SOC Ltd. within the next two weeks that it can charge power consumers more than planned starting in April.

The National Energy Regulator of South Africa allowed the state-run utility, which provides 95 percent of the country’s power, to increase tariffs by an average of 8 percent annually for the five years to 2018. That may be increased further starting April 1, 2015, should it find that Eskom’s actual costs in the three years through March 2013 exceeded projections. Nersa will announce its decision at the end of May.

Eskom has struggled to satisfy South Africa’s demand for power in the last decade as a lack of working generating capacity and a growing economy has forced the company to schedule rolling blackouts, called load-shedding locally, across the country. Above-inflation advances in energy costs have also raised pressure on the utility.

Price increases of more than 8 percent are “eventually for certain, otherwise there will eventually be a load-shedding crisis again and again,” said Peter Attard Montalto, an emerging-markets strategist at Nomura Holdings Inc. in London.

Nersa, through a so-called regulatory clearing account mechanism allows Eskom to “adjust for the over- or under-recovery” of costs to ensure both the producer and customers are treated fairly, Johannesburg-based Eskom said today in a statement. It didn’t say whether tariffs would be increased or lowered.

Energy Costs

Eskom’s primary energy costs, mostly coal, rose at rates of 23 percent to 31 percent in each the three years to 2013. They were were 60.7 billion rand ($5.9 billion) in 2013, exceeding Nersa’s projections by 34 percent, and were 14 percent higher in 2012. The utility uses coal to generate about 85 percent of its electricity.

While Nersa set price increases of an average of 8 percent annually until March 2018, Eskom had applied for advances of 16 percent each year. This deficit is “eating into investment and is likely to be the main case for tariff increases,” Montalto said.

Despite Eskom’s need for more funding, Montalto said he doesn’t see any “step-level” increases in tariffs because the political situation in South Africa is still “tense.”

The ruling African National Congress won May 7’s general election by the lowest margin since it took power 20 years ago. Loyalty is now moderating as more young people who never lived under apartheid become voters and disillusionment with rising joblessness and corruption mounts. A pay strike at most South African mines owned by the world’s three biggest producers, now in its 17th week, has also eroded confidence in the industry.

Eskom asked power users to voluntarily reduce demand today by 10 percent as supply is “severely constrained,” it said in a separate e-mailed statement.

“Should the demand not decrease, load-shedding will be implemented as a last resort to protect the national grid from a total shutdown,” it said.

To contact the reporter on this story: Kevin Crowley in Johannesburg at kcrowley1@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Ana Monteiro

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