Six reasons why NERSA shouldn’t increase electricity tariffs
22 June 2015
Last month Acting Eskom CEO, Brian Molefe, misled South Africans with the promise that winter would be load-shedding free. Regardless of this assurance, millions of South Africans have found themselves sitting in the cold and dark as we entered Stage 3 load-shedding over the weekend.
Despite Eskom’s inability to provide a reliable supply of electricity to power our economy, this week the National Energy Regulator of South Africa (NERSA) will be conducting hearings regarding Eskom’s application for a 25.3% tariff hike for the 2015-16 financial year.
It is the DA's considered opinion that while the proposed tariff increases may be good for Eskom, they are clearly bad for the economy. Since President Zuma took office we have seen unemployment rise from 31.7% in 2009 to 36.1% in 2015 while the number of unemployed has grown by 2 million people. Further to this, the gross domestic product growth rate plummeted to 1,3% in the first quarter of this year.
We will therefore vehemently oppose any tariff increases in the coming financial year while our economy continues to suffer from constant load-shedding as a result of the mismanagement of Eskom.
Load-shedding is robbing South Africans of their livelihood as investors lose confidence in the economy and the manufacturing industry is forced to cut jobs. The electricity crisis has already cost the economy billions and resulted in countless job-losses. Passing the problem on to consumers through above-inflation tariff increases adds insult to injury.
DA Shadow Minister of Energy, Gordon Mackay MP, will therefore be making submissions to NERSA tomorrow in which he will oppose the increase for 6 primary reasons:
1. Economic Impact. The South African economy is in a far more vulnerable state than it was when NERSA made its most recent Multi Year Price Determination. Economic growth is stagnant, unemployment is increasing, inflation is accelerating and the currency is in decline. Our economy simply cannot withstand an additional shock from a sharp electricity price increase.
2. Tariff increases will kill jobs. The impact of tariff increases is particularly acute for small, medium and micro-sized enterprises (SMMEs) who have limited capacity to absorb higher costs. SMMEs are the driving force behind job creation in South Africa – any additional tariff increase will severely constrain their ability to do so and only serve to kill existing and future jobs.
3. Eskom is an ever expanding black hole. Eskom has received far above inflation tariff increases every year since 2003 such that electricity prices have effectively doubled in real terms since 2009. Despite these increases it has still failed to stabilise its financial position and requires constant government bailouts to stay afloat. This led to Standard & Poor's reduction of Eskom's credit rating to 'speculative grade', indicative of major structural challenges that can’t be addressed by merely raising tariffs.
4. Secrecy surrounding fuel contracts. A key measure of determining cost reflective tariffs is transparency in fuel contracts. Eskom still refuses to make critical information about its coal and diesel contracts available to the public. Speculation that Eskom is paying well in excess of the retail prices for its fuel in order to enrich well connected ANC cadres means that Eskom is being used as a piggy bank by the political elite, severely undermining any attempt at cost control.
5. Deception regarding tariff increases. Eskom makes the misleading claim that its request for an additional tariff increase stems predominantly from unforeseen fuel costs arising from the purchase of diesel to minimise load-shedding. Eskom's reliance on diesel stems from mismanagement, cost over-runs, and delays in the construction of Medupi and Kusile. Not only are consumers being asked to fund the new build programme, they are being asked to pay for Eskom’s mismanagement.
6. Funding alternatives. The time has come for Eskom to seek funding from the private sector through the sale of an equity stake in Eskom. Such a stake will raise billions of rands, strengthen Eskom's financial position, introduce skilled board members to the parastatal, and improve overall management of Eskom.
Just last week, Molefe argued that the pain of tariff increases was far worse than the damage to the economy caused by load-shedding. But we cannot forget that the cause of load-shedding is government’s failure to heed the warnings, as far back as 1998, to increase additional generation capacity.
It is increasingly clear that the ANC government is incapable of providing solutions to the continued electricity crisis and wants to shift the responsibility for the funding gap to consumers. This is not only unfair, but unsustainable.
When government announced the War Room in response to the crisis in December last year, they led us to believe that solutions would be forthcoming through the so-called 'Five Point Plan'. Six months down the line the situation has gone from bad to worse, with Deputy President Cyril Ramaphosa falling far short of providing decisive leadership during this crisis.
Load-shedding remains a daily occurrence, Medupi and Kusile are far behind schedule and over budget, and government has committed to a R1 trillion nuclear build programme that is both ill-advised and not financially viable.
Enough is enough. The DA will not stand by as our country is suffering due to continued policy uncertainty regarding electricity tariffs and the gross mismanagement of Eskom.
South Africans deserve proper leadership to get us through the crisis we are facing. It is a significant threat to our well-being and serves as a major constraint to economic freedom and opportunity.
Joint statement issued by Gordon Mackay MP, DA Shadow Minister of Energy, and Natasha Mazzone MP, DA Shadow Minister of Public Enterprises, June 22 2015
