Eskom’s application to the national energy regulator for a 53% hike in electricity prices could well have been an application to Reserve Bank boss Tito Mboweni for yet another interest-rate hike.
Experts estimate that, if granted, Eskom’s request to the National Energy Regulator of South Africa could hike the annual rate of inflation by at least 2%. Inflation in South Africa is already rising quickly and is expected to hit a 9% high next month, well out of the 3%-to-6% target range.
The application comes at a time when energy costs are increasing across the board. Petrol is at an R8,25-a-litre high in Gauteng and oil is trading at $105 a barrel. The rand, meanwhile, is under pressure, adding to the likelihood of more steep fuel increases.
”This is a huge one-off increase on the price and it will have a huge one-off impact on inflation in the next 12 months,” said Pieter Laubscher, chief economist at the Bureau for Economic Research. ”It’s a shock to the economy, but we have benefited [from cheap electricity] for so long that it is inevitable that the price would adjust to meet the long-run marginal costs of supplying electricity.”
Cornelius van der Waal of consulting firm Frost and Sullivan said consumers at the lower end of the income bracket will be hit hard. Unions will demand salary increases to ease this pressure and Eskom’s input costs have also increased massively, he said.
In addition, the power utility is competing with developing nations such as China for electrical equipment such as turbines used in large power stations.
Global demand for this equipment makes it very difficult for Eskom to forecast the cost of creating new capacity, he said.
But Van der Waal argued that consumers should take it on the chin now to avoid paying more in the future. ”If Eskom borrowed [money] on the open market, consumers would be paying a lot more for a lot longer,” he said.
