/ 20 March 2008

Paying the price for cheap power

The National Energy Regulator of South Africa (Nersa) cannot ignore Eskom’s request for a 53% tariff increase, a business research and consulting firm said on Thursday.

”If the country expects the electricity utility to resolve the current capacity crisis, it must be given the resources to do so,” Frost & Sullivan said in a statement.

”In broad terms, we haven’t had significant electricity price increases in the last five to ten years,” said energy industry manager Cornelis van der Waal.

”At the same time, there was no additional generation capacity added. The result is that South Africa now has the cheapest electricity in the world, but it also has a crisis on its hands.”

Van der Waal said low electricity prices were part of the problem.

”We must either have cheap electricity and expect disruptions or we must pay the same amount for electricity as the rest of the world and then we can demand a good service.”

He said an increase in prices was also crucial to encouraging private-sector investment in the energy sector.

The local market would be attractive to independent power producers only when the prices they charged reflected the costs of production.

”This must, however, be accompanied by a deregulation of the market so that Eskom is not the sole buyer of electricity,” he said.

Van der Waal said that for Eskom to meet the demands placed on it, the price of electricity would have to increase at least 60% ”one way or another”.

While this could happen over a five year period, Frost & Sullivan believed the effects of a one-off ”shock to the economy” would be more easily managed than the longer-lasting, cumulative effect of a series of above inflation tariff increases.

Eskom would also have to detail how it was going to spend the money, manage its operations better and increase efficiency.

”But they have to get this money otherwise we are going to continue sitting in the dark,” said Van der Waal.

‘Cabinet failed’

The South African National Civic Organisation (Sanco) rejected the proposed hike on Thursday, saying it might resort to a rent boycott if the matter was not resolved speedily.

”We are not shy to say if it is not dealt with speedily we will call for a rent boycott,” said secretary Toenka Matila.

However, it would first discuss the matter at its national executive committee meeting to gauge an acceptable increase level.

It would then discuss this with Eskom and Nersa and decide on a course of action, depending on the response it got.

Sanco believed that the government should make better use of the budget surplus to address the problem.

The organisation believed that although President Thabo Mbeki’s apology was ”highly respected”, it was not enough.

”It goes to government — Cabinet failed. We can’t just accept the apology while it will hit the people hard,” said Matila.

Matila said community members were extremely angry about the proposal.

”Communities must not pay for the failure by Eskom,” he said.

In addition to a rent boycott, it might also call for the resignation of local government officials, Eskom management and its board.

This week Eskom announced that it wanted to increase its tariff by 53%, instead of the 14% it had already been granted, to deal with the power supply problems it faces.

Boycotts, which included rent and bus boycotts, were a feature of resistance during the apartheid era. – Sapa