Power cuts could wipe out R77bn in tax take

An escalation in load-shedding is expected to cost the economy about R400bn more this year than in 2022 and wipe out R77bn in tax take, the electricity minister said as he outlined the heavy toll of the energy crisis on the country.

Kgosientsho Ramokgopa said the impact of load-shedding on SA’s total economic activity in the production of goods and services could amount to R1.6-trillion, compared with R1.23-trillion in 2022. The effect on the value-added approach to GDP, or gross value added, is projected at R725bn.

He said load-shedding could also wipe out R77bn in tax earnings in 2023. This would be equal to about 5% of the total tax revenue in 2021/22.

It illustrates how the inability of Eskom to meet the demand for electricity is “affecting the government’s ability to help the poor”, Ramokgopa said during a public lecture at the University of Pretoria.

In addition, he said job losses due to persistent electricity cuts could amount to about 860,000 in 2023.

Stats SA’s latest labour force survey put the unemployment rate at about 33% — among the highest in the world.

In response to questions from Business Day, the ministry did point out, however, that these figures are based on modelling that was done in April and thus assumed higher stages of load-shedding than is the case at present.

Despite recent improvements that have helped to narrow the gap between electricity supply and demand, resulting in lower stages of load-shedding, South Africans have already experienced more power cuts in 2023 than in any year before.

The country suffered 75 days of load-shedding in 2021. This increased to 205 days in 2022, and SA is on track this year for a record number of days with load-shedding, already on 218 up to the first week of August.

The figures presented by Ramokgopa show the value-destroying effect load-shedding has had on the productive sectors of the economy and their ability to contribute to the fiscus.

Mining has been one of those most affected and also faces logistical challenges due to rail disruptions.

A report by RMB Morgan Stanley released in July showed just how big the drop in tax collection in the mining industry could be this year. It looked at data collected from 15 mining companies representing the majority of corporate tax-paying entities from the sector.

The report concluded that the tax take from SA’s mining companies is estimated to halve to R50bn in 2023 at current spot prices, compared with 2021 when the country collected R110bn in corporate taxes and royalties from mining firms.

Reuters reported that new data from the Minerals Council SA showed mine output and sales for the 12 months to May were down 4.6% and 4.2%, respectively, with mining output now down 7.8% from prepandemic levels.

Ramokgopa said one of the measures Eskom is taking to reduce load-shedding is to ramp up the use of diesel-powered open-cycle gas turbines (OCGTs) meant for emergencies or peak demand. “The downside is that we are burning a lot of diesel, which is very expensive. The upside is that we are saving the economy.” he said.

Eskom has made provision to spend about R30bn on diesel to power OCGTs this financial year. In the previous year, Eskom spent R21bn on diesel — more than three times the budgeted amount. It spent just more than R10bn in 2021/22.

Ramokgopa acknowledged that ramping up the use of OCGTs is not a sustainable measure for dealing with the electricity crisis.

“The only sustainable measure is to ensure we lift the performance of the other plants to the point where we only have to use peaking plants during peak demand times. [The OCGTs] are not designed to be run as baseload and we are shrinking their economic life,” he said.

During July, OCGTs were run twice as much as during the same month in 2022.

According to Eskom data, for the first four months of the current financial year OCGTs delivered 2,113GWh of energy, compared with 1,352GWh for the same period in 2022. With Andries Mahlangu

erasmusd@businesslive.co.za