Eishkom hike is going to hurt – a lot
The energy regulator has awarded Eskom an increase of almost 14%, and the experts are very worried
It’s time to adopt the brace position, as economists warn that the electricity tariff increase approved on Thursday will break a few backs.
The National Energy Regulator of SA (Nersa) announced SA’s new electricity tariffs, and the price of power will rise by 13.8% for 2019/20.
The figure comes from Thursday’s announcement of the 9.41% increase, which is on top of the previously awarded 4.4% for the 2019/20 financial year.
It comes on the back of a massive fuel hike of 74c a litre, which kicked in on Wednesday.
Economists said the increase would have a knock-on effect for the economy and would in all likelihood lead to a rise in the inflation rate next year.
Eskom had applied for hikes of 17.1% for 2019/20, 15.4% for 2020/21 and 15.5% for 2021/22.
The announcement, by Nersa chairperson Jacob Modise, was scheduled to be made at 1pm, but it was delayed by nearly two hours.
After the delay, Nersa announced its approved increases of 9.41% for 2019/20, 8.10% for 2020/21 and 5.22% for 2021/22.
This follows months of public hearings across the country, during which many businesses argued another tariff hike would have catastrophic consequences for the economy.
Economist Mike Schussler said he expected the inflation rate to be above 5% next year.
“When you add the almost 14% increase to the rise in fuel and water, and in turn the rise in basic necessities, it is unlikely that inflation will remain below 5% next year.
“This is going to hurt consumers ... a lot. Especially when you consider how hard-hit consumers already are. “There’s another element here too, and that is the fact that Eskom is taking Nersa to court for the other tariff increases it did not get. Imagine the extra stress on consumers if they get it.
“It could really sink the economy actually, especially if we still face load-shedding.
“We were told it [load-shedding] would be solved by now. We are getting to the point where people are angry; if they are paying more and still getting load-shedding, it could be a disaster.
“This increase is higher than people thought it would be ... many camel’s backs will be broken,” he said.
Energy analyst Chris Yelland agreed.
“If Eskom fails and there is more load-shedding, the economy is going to get worse,” he said.
He said despite Eskom getting a lower increase than they had asked for, “the inflation was almost three times the normal rate”.
“The poor have got so little disposable income already, now they will have far less. It’s not sustainable – it has a serious impact on the economy,” he said.
Johannesburg mayor Herman Mashaba called the tariff increase a “reward” for corruption.
In a press release, the mayor said: “It is still our view that the present increase serves only to reward maladministration and corruption which has gutted Eskom.
“This is made worse when one considers the deteriorating economic conditions faced by all South Africans, as evidenced by rapidly rising costs of living.
“Around 45.2% of our residents exist, barely surviving, below the poverty line. Just over 900,000 of our residents are unemployed and the national economic growth outlook remains depressed.
“Given the poor state of the national economy and the massive corruption at Eskom itself, the city [Johannesburg metro], on their behalf of our residents, had argued that the proposed tariff increases were simply unacceptable.”
He reiterated the increases would hit to poor the hardest.
Dawie Maree, head of information and marketing for FNB Agribusiness, said the increase would have a negative impact on the agricultural economy by increasing the cost of production.
“From a primary agriculture perspective, irrigation, fruit and vegetable farmers will particularly be impacted as they rely heavily on electricity for production. Farmers, just like consumers on the other end of the supply chain, are price takers. Therefore, they cannot pass on this increase in production costs. As a result, the cost squeeze will just be harder on producers.
“Furthermore, we are likely to see the food processing sector coming under pressure, with costs being passed on to consumers who are also impacted by the tariff increases in their personal capacity.
“The current power supply challenges, coupled with ongoing tariff increases, present a compelling case for farmers to consider investing in renewable energy alternatives to ensure the sustainability of the sector,” he said.
In February, finance minister Tito Mboweni announced Eskom would get a R69bn bailout.
Eskom is in a dire financial situation, with R350bn debt it is unable to service from the revenue it earns.
Yelland said Nersa was performing a difficult balancing act between keeping the debt-laden state utility viable and sustainable, and ensuring people would not be crippled by the economy.