Eskom granted a 31,3% tariff increase

South Africa’s power regulator on Thursday granted Eskom a 31,3% tariff rise for the 2009-10 financial year, falling just short of the firm’s request for 34%.

Eskom applied for the increase to help pay for its plan to expand power generation capacity over the next five years. It plans to spend R385-billion on power stations.

Eskom, which provides 95% of the South Africa’s power, has been battling an electricity shortage since January last year.

The National Energy Regulator of South Africa (Nersa) said the tariff will take effect from July 1 2009 to March 31 2010.

“The Nersa at its meeting held today approved an average price increase of 31,3% for Eskom,” said Collin Matjila, Nersa chairperson.

The utility has said its tariff request is an interim one to cover the period to end-March 2010.

It plans to submit a new request later this year to cover a three-year period to the end of March 2012.

Critics say higher tariffs will add further pressure on consumers, struggling with the fallout of the global economic slowdown and South Africa’s first recession in 17 years.

The power regulator approved a 27% tariff hike last June, short of the 53% increase requested by Eskom.

The regulator said at the time electricity prices could rise by between 20% and 25% a year over the next three years, but later said this estimate could change.

Eskom has said it would rely on an increase in electricity tariffs, equity and borrowings to raise the funds for expansion.

At Nersa hearings earlier this month, Eskom’s application was criticised, with groups saying it lacked clarity and transparency. The utility has failed to explain adequately why its costs have continued to spiral out of control.

Eskom said the increase is needed to fund rising manpower costs, maintenance costs and “sundry costs”, including additional costs to return old power stations to service, and bad debts.

Hard on consumers
Consultancy Frost & Sullivan said on Thursday that the increase will be hard on consumers.

“The increase will be hard on consumers in the medium term, but we maintain that a long-term view needs to be taken on this issue,” said Frost & Sullivan’s energy industry manager Cornelis van der Waal.

“These decisions must be taken in the interests of the country’s economic development, the sustainability of industry and ensuring a reliable supply of electricity,” he said.

Hiking tariffs now was the best way to support these long-term goals, Van der Waal said.

Earthlife Africa Johannesburg said the increase will hurt the poor.

“What is shocking is that while poor users, small businesses and domestic customers will all be faced with increases, Eskom’s large customers [under special purchasing agreements] will not be affected,” it said in a statement.

“Essentially township dwellers and suburbanites will have increases to meet Eskom costs, but large companies are given a pass. This is taxes for the poor, and handouts for the rich,” said the organisation’s energy policy officer Tristen Taylor.

While there would be a limited price increase of 15% for Eskom’s and the various municipalities’ poor customers, Taylor said this hike was above inflation.

“While Nersa did offer the hope of an expanded free basic allocation and an inclining step-block tariff at some later date, this does not alleviate the financial burden on the poor during these cold winter months,” Taylor said.

He noted that the poor would be forced into using “dirty” forms of energy, such as coal and paraffin.

Trade union UASA said the increase was a blow to consumers and industries that are already reeling under the pressure of the economic meltdown.

‘Although lower than Eskom’s requested 34% hike, it will have a devastating effect on consumers and industries alike when the increase comes into effect on July 1,” said UASA spokesperson André Venter.

He said more than 6,5-million customers make use of Eskom’s services.

‘Consumers are losing hope, they simply won’t be able to carry the extra burden. Industries struggling to keep head above water will be hit hard and I suspect many businesses will find it hard, if not impossible, to recover from this.

‘Even if the South African Reserve Bank announces further rate cuts later this afternoon [Thursday], it will now have little effect,” Venter said.

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