S. Africa Power Prices to Rise 9.4%; Eskom Gets Half Sought

  • Extra increase applies only to year starting April, Nersa says
  • Utility gets 49% of the 22.8 billion rand it asked for

South Africa’s energy regulator capped an electricity price increase for the coming year to an average 9.4 percent, after allowing the nation’s power utility to only recoup about half the unbudgeted expenses it incurred in fiscal 2014.

The increase applies to standard customers of Eskom Holdings SOC Ltd., National Energy Regulator of South Africa Chairman Jacob Modise told reporters in the capital, Pretoria. Nersa in February 2013 had initially allowed 8 percent for the 2016-17 financial year. This will amount to an extra 11.2 billion rand ($713 million), or 49 percent of the amount Eskom had initially asked for.

While the increase exceeds the inflation rate, which was 6.2 percent in January, it’s below the 12.2 percent for this year that the central bank used in its assumptions for inflation. Had Eskom been granted its full request, power tariffs would have risen more than 20 percent, Jeffrey Schultz, an economist at BNP Paribas SA, said in November.

Electricity prices in South Africa have almost quadrupled since 2007, when the country started suffering power shortages. Scheduled supply cuts, known as load-shedding, took place almost once every two days on average in the first half of 2015. in public hearings on Eskom’s request last month, business organizations said further increases would damage the economy, whose rebound from a 2009 recession has struggled to gain traction as commodity prices slump.

Strained Grid

The regulator is allowing Eskom to recoup 16 percent of the 8 billion rand it wanted for fuel to run open-cycle gas turbines. “We continue to run a strained grid,” Eskom said in an e-mailed statement after the decision. The turbines “are part of our emergency portfolio and have been used in the past to avoid or limit load-shedding with the understanding that we can recover those costs,” it said.

The country will hand over 3 billion rand to Eskom this week as part of a 23 billion-rand bailout promised in 2014 for the company that’s been struggling to fund new plants while suffering breakdowns at its aging operations.

The decision “doesn’t address the question of Eskom’s continued financial sustainability,” the utility said. “In addition, it will have operational consequences.”

The power utility submits accounts to the regulator annually, enabling it to recover costs that weren’t budgeted for when Nersa first set the tariffs. The watchdog told the utility to submit a new application for allowable increases within three months.

Needed More

The lower increase “will be good for the consumer, but it’s not going to be good for Eskom because they needed more and they just got this bit,” Busisiwe Radebe, an economist at Nedbank Group Ltd., said by phone from Johannesburg.

The Reserve Bank sees inflation exceeding the upper end of its 3 percent to 6 percent target band until at least the end of 2017, it said Jan. 28, when the monetary policy committee raised the benchmark repurchase rate by 50 basis points to 6.75 percent. The lower-than-expected tariff increase will provide the central bank “some much-needed comfort,” BNP Paribas’s Schultz said Tuesday.

“The tariff increase remains well above the prevailing level of inflation,” he wrote in an e-mailed note. “Nevertheless, it should help to shave off around 0.1 percentage point from our CPI forecasts both this year and next.”

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