Power problems: Pretoria West power station. The investment structure in the 1970s created cheap electricity, because it was charged at its operating cost, as opposed to its replacement cost, which is one of the reasons for Eskom’s current supply constraints. (Photo: Gustav Butlex)

CRA Business News – South Africa

By Tshegofatso Mathe

South African business associations see the latest tariff hike as “regressive” and say it will thwart efforts to grow the South African economy post Covid-19. As a response to the tariff increase, the associations are urging businesses to seek alternative energy sources so that they can preserve jobs — and their own companies. 

Chief executive of Business Unity South Africa (Busa), Cas Coovadia, said the organisation was obliged  to flag the tariff hike as it would make economic recovery tough after Covid-19. “It makes it difficult for companies on the edge to continue operations. This is also driving businesses to seek alternative energy supplies,” he said.

Coovadia was speaking to the Mail & Guardian this week about the Johannesburg high court ruling that allows Eskom to raise its tariffs. 

The judgment said the National Energy Regulator of South Africa (Nersa) was wrong for including a R69-billion equity payment from the government in its calculation of Eskom’s allowable revenue for 2019 to 2022. The R69-billion was allocated to Eskom in the 2019 budget to service the utility’s enormous debt. 

The ruling will result in the average standard Eskom tariff approved by Nersa going up from 116.72c/kWh to 128.24c/kWh — an increase of 9.8% — as the first R23-billion is recouped. This will take place next year in April. This is on top of the 5.22% tariff increase the power utility had already negotiated for next year, and will bring the total increase to at least 15%. 

Coovadia said the judgment comes as businesses are cutting their operational costs and dividends because of Covid-19, and that an increase in the price of electricity is “untenable”. He added that Eskom’s solution of dealing with its financial problems by hiking rates is not “sustainable”. 

The power utility is struggling to service R440-billion of debt, which it incurred because of surging salary, fuel and debt-servicing costs, as well as mismanagement and corruption scandals. 

Coovadia acknowledged efforts made to address the longstanding issues at Eskom by restructuring its whole operational structure. 

Since the appointment of the new chief executive André de Ruyter, he said, some progress has been made. But they “should be able to issue the request for proposals for the new tranche of renewables. We should get renewables going.”  

He added that a mix of energy sources would help to alleviate pressure on the national grid. 

The government issued the Integrated Resource Plan (IRP) 2019  last year, but Coovadia said it was taking a long time to implement. “I do not know what the deal is, but it can be done immediately. There is no need for policy change,” Coovadia said, adding that the government needed to remove regulatory impediments for renewable energy.

Chief executive of the South African Chamber of Commerce and Industry (Sacci), Alan Mukoki, said the judgment was “regressive” and would not solve the problems at the utility. 

Mukoki said the chamber understood that Eskom was dealing with legacy issues but, should Eskom default on its debt, that would collapse the economy because there was no way the treasury would be able to afford a bail-out.

He said although the chamber was encouraging businesses to seek alternative energy sources, such as solar, its members could not “bury [their] heads in the sand as if we do not know what the issue is”.

Those businesses that could get off the grid should be supported in doing so to avoid shedding jobs, but not at the expense of Eskom, he said. 

Mukoki suggested companies could use alternative energy sources, while also being on the grid. 

“We do not necessarily think that Eskom must be destroyed, so we have to make that statement very clear. Eskom solutions must be supported by business, because Eskom is too big to fail [considering the implications] for the South African economy in general,” he said.

“We want Eskom to succeed — but the government needs to remove itself from managing state-owned enterprises [SOEs],” Mukoki said.

Although the tariff increase will put pressure on businesses and households, South Africa’s electricity isn’t particularly expensive, said independent economist and policy strategist Nchimunya Hamukoma.

Hamukoma said South Africa’s electricity is cheaper than that in Morocco, Côte d’Ivoire, Brazil, the United States, Senegal, Uganda, Kenya, Singapore and Chile. 

She said the problem is that the investment structure in the 1970s created cheap electricity, because it was charged at its operating cost as opposed to replacement cost. “So it was enough to keep the generators running, but not enough to buy new generators,” Hamukoma said.

She noted that in the late ’90s and early 2000s there was a bid for more cost-reflective pricing but that was at odds with the way the economy was structured — given the special pricing deals for mines and other heavy industry users — and the proposed developmental state. 

Energy expert Ted Blom said, “Eskom is busy killing the economy. It has already cost us three million jobs and, at this rate, it’s going to cost us another three million.” 

Blom said allowing a tariff increase while everyone acknowledges Eskom is not effective was “ridiculous”, adding that he is advising companies to go off the grid right now because electricity is unaffordable. 

Blom noted that medium-sized businesses could save about 60% to 70% a month on electricity costs if they chose alternative energy sources, and it would take between six months and two years to recoup the capital outlay spent on going off grid. 

Credit to Mail & Guardian.