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23 Jun 2008 06:00
Consumers could face a 140% increase in the price of electricity over the next four years unless government injects more cash into embattled power utility Eskom.
The National Energy Regulator of South Africa (Nersa) announced on Wednesday that over and above its decision to grant Eskom a total 27,5% rise in electricity tariffs for this year, further increases of between 20% and 25% are projected for the next three years.
According to Dr Azar Jammine, chief economist at Econometrix, consumers will pay 140% more for electricity if these increases are implemented.
This means consumers would pay more than 70c/kWh for their electricity, up from the average 30c/kWh.
Nersa’s Thembani Bukulu told the Mail & Guardian that the increases are likely to be implemented should the economic climate prevail and Eskom’s capital expenditure programme remain at its forecast of R343-billion over the next five years.
But he said that if government increases its proposed loan of R60-billion, which he considers likely, the projected increases over the coming years would change.
In its recommendations Nersa argued that the drawdown of government’s R60-billion loan to Eskom be reviewed to ensure the company’s credit rating remains stable and allows Eskom to maintain its borrowing capacity.
But treasury would not comment on whether the loan amount to Eksom would be re-evaluated.
“The treasury, [the] Department of Public Enterprise and Eskom are still discussing the precise drawdown of the loan,” said treasury spokesperson Thoraya Pandy
“One of the principles that we will take into account is maintaining Eskom’s credit rating and ensuring that it has the cash flow to undertake its operations.
She could not say when the terms of the loan will be finalised. “Given the complexity of such a financing arrangement, it will take time to finalise the details of the loan”.
But, said Cornelius van der Waal of growth consulting firm Frost & Sullivan, whatever the terms of the loan, the public still pays for the electricity increases, either as consumers or as taxpayers.
Jammine said the increase in electricity prices will undoubtedly cause further inflationary stress. It is likely that we will see the Reserve Bank increase interest rates again. “But whether this will be a 1% increase or more remains to be seen,” he said.
Chief economist at the Bureau for Economic Research, Pieter Laubscher, expressed concern about the proposed medium-term increases.
“That will certainly keep CPIX high, but how the [Reserve] Bank will handle it remains to be seen. These rolling increases are likely to be built into inflation expectations,” he said. Even if the increases are not implemented, such expectations could have a negative impact on South Africa’s growth.
But Laubscher does not believe a further interest rate hike is “a foregone conclusion”. He said that the effects of inflation and the continued increases in interest rates are beginning to slow the economy.
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