Electricity price pain 'necessary'
26 June 2009
South Africa's electricity tariff increase will be hard on consumers in the medium term, but is important for the country's longer-term economic development, says consultancy Frost & Sullivan.
South Africa's energy regulator on Thursday granted Eskom a 31.3% tariff increase – limited to 15% for poor customers – while announcing several moves aimed at tightening the leash on the state-owned electricity provider.
Eskom, which supplies 95% of South Africa's power, has been battling to cover cost increases while embarking on a five-year expansion programme. The electricity supplier says it requires over R150-billion to fund a R385-billion expansion plan to build new power stations.
'Better to take the pain now'
"The increase will be hard on consumers in the medium term, but we maintain that a long-term view needs to be taken on this issue," said Frost & Sullivan's energy industry manager, Cornelis van der Waal.
"These decisions must be taken in the interests of the country's economic development, the sustainability of industry, and ensuring a reliable supply of electricity."
Hiking tariffs now was the best way to support these long-term goals, Van der Waal said.
Eskom's tariff hike will come into effect on 1 July and last until 31 March 2010. Eskom will submit another request for a tariff increase later in 2009 that will include a three-year period to the end of March 2012.
Lower rates for poor customers
National Energy Regulator of SA (Nersa) chairman Collin Matjila told journalists in Pretoria on Thursday that the tariff increase would result in a rise in the average standard tariff from 25.24 cents to 33.14 cents per kilowatt hour.
Matjila said the approved price increase on the average standard tariffs included a limited price increase of 15 percent to both Eskom's and the various municipalities' poor customers.
In addition, Nersa would conduct a "verification" of all costs, and "costs determined not to have been efficiently incurred in line with the multi-year price determination rules". These costs would be "clawed back".
Eskom came under fire during recent public hearings into their tariff increase application for the high costs of mainly coal and staff. Matjila said Nersa may look into coal costs, but this would be "subject to confidentiality".
The energy regulator had taken into account the 175 written comments on the application, as well as a total of 21 oral presentations made earlier this month.
The parastatal's interim application unleashed a storm of criticism from trade unions and civil society groups due to the anticipated affect it would have on the poor.
Tighter control
Eskom was also widely criticised for missing the legislative deadline for its tariff hike application, and for failing to provide sufficient information to substantiate the need for the increase.
"We hope this ad hoc application will not be a thing of the future," Matjila said, referring to the late application. He also noted that the parastatal was required to cut costs.
In addition, he said Eskom was required to submit its price increase applications to the regulator six months ahead of the date it would take effect from.
Addressing the lack of information provided by Eskom in its application, the regulator said it would issue minimum requirements to "provide clarity" on the information needed for tariff applications.
Sapa
