SA electricity prices still low, Eskom tells Nersa

Inflation weary consumers who are still struggling to absorb last year’s surge energy prices will probably not want to hear this, but according to Eskom electricity prices in SA are still low when compared with global trends.

The National Energy Regulator of SA (Nersa), which sets electricity prices in the country, this week hosted public hearings on Eskom’s proposal to raise tariffs by 20.5%.

Eskom, which plans to ask for another 15% in 2024 and 10% a year later, has argued that price increases are necessary to help it pay interest on its nearly R400bn debt pile and pay for maintenance needed to keep the lights on.

But the proposal comes at an inopportune time for pandemic-hit consumers and businesses as they struggle to absorb a 40% rise in fuel prices and another 15% increase in electricity prices in 2021. If granted, it could also put the Reserve Bank in a tight spot as it will need to strike an even finer balance of taming inflation that registered its biggest annual increase in December without undermining the tentative economic recovery.        

In a presentation delivered on the third day of the hearings byUlrich Minnaar, of Eskom research testing & development, the utility argued that its tariffs were still low despite persistent above inflation increases over the past decade.

Referring to the conclusions reached in a 2018 report produced by financial adviser Lazard which provided a comparison of SA electricity prices and those in other selected countries, Minnaar said Eskom tariffs did not reflect the true costs of electricity supply and that its tariffs were “low by international standards”.

The report showed that electricity prices in SA were on par with prices charged in India, China, Indonesia and Vietnam and significantly lower than those charged in most European countries and several in African.

Minnaar also pointed out that in 2021 SA household electricity prices were lower that those charged in any of the Organisation for Economic Co-operation and Development (OECD) member countries. Compared with SA’s price of $0.08/kWh, at the top end, households in Germany paid $0.34/kWh while households in Korea paid about $0.10/kWh.

Minnaar did specify however that the rates charged by municipalities to small and medium industrial consumers were, in some cases, higher in SA than in China. Looking at 2018 rates the Emfuleni Local Municipality in Gauteng charged these users about $0.22/kWh and City Power in Johannesburg was charging about $0.14/kWh while prices in Beijing and Shanghai were about $0.12/kWh and $0.11/kWh respectively.

The mayor of the City of Johannesburg, Mpho Phalatse, representing the city’s multi-party government, said  she would be lodging a formal objection to Nersa in response to Eskom’s request, adding to widespread public outrage over the proposal.

“Such a tariff hike would simply be unaffordable for Johannesburg residents and small business owners, who are already buckling under the pressure of a failing economy and ever-increasing unemployment which ultimately leads to dwindling incomes and revenues,” Phalatse said in a statement.

The final day of hearings will take place on Friday January 21 in Midrand. Nersa is set to announce its decision onFebruary 25 and the new revenues and tariff for 2022 will then be implemented from April 1 for nonmunicipal customers and from July 1 for municipal customers.