Higher South Africa Power Price to Hurt Economy, Regulator Hears

  • Eskom failing to support industries that must be competitive
  • Weak economy means businesses can't absorb higher prices

South African consumers shouldn’t be forced to pay for planning errors by the national power utility, companies and municipalities told the National Energy Regulator on the first day of public hearings into Eskom Holdings SOC Ltd.’s request to recover unforeseen costs through higher tariffs.

The state-owned company asked Nersa for permission to recover 22.8 billion rand ($1.4 billion) of extra expenses incurred in the 2014 financial year. The application, if successful, may see electricity prices rise more than 20 percent from April 1, Jeffrey Schultz, an economist at BNP Paribas SA, said in November. The inflation rate is 4.8 percent. The watchdog will hold more than two weeks of hearings across the country and is expected to make a decision on Feb. 25.

If Eskom is granted the full adjustment, it would mean an additional 8.6 percent increase in tariffs over the already-approved 8 percent, the City of Cape Town said in a presentation. “All cities will face at least a 16 percent Eskom increase in July this year that will have to be passed on to consumers," said Leslie Rencontre, the head of Cape Town’s electricity-supply department.

Economic growth in South Africa has been under pressure because of electricity shortages, weak global demand, plunging metal prices and drought. Bank of America Merrill Lynch this week cut its 2016 growth forecast for the nation by 1 percentage point to 0.4 percent.
The power utility, which supplies about 95 percent of power to the continent’s most-industrialized economy, submits accounts to the regulator annually, enabling it to recover costs that weren’t budgeted for when Nersa first set the tariffs.

Electricity prices in South Africa have almost quadrupled since 2007, when the country first had power shortages. Scheduled supply cuts, known as load-shedding, took place almost once every two days on average in the first half of 2015.

“Electricity supply has to be competitive as it is an essential input cost for the automobile manufacturing industry,” National Association of Automotive Component and Allied Manufacturers Acting Executive Director Roger Pitot said in his presentation. “Eskom simply does not support an industry which increasingly needs to be globally competitive.”

The already-weak South African economy means that businesses cannot absorb any further power-price increases, health-club provider Virgin Active said in its presentation.

“A further tariff has a massive compounding effect and is baked into the base forever -- compound effects of previous years’ increases should be more than sufficient for Eskom,” it said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE