Nersa slashes Eskom's power tariff to 16%

The National Energy Regulator of South Africa (Nersa) said on Friday that it had cut the increase in electricity rates for Eskom to 16% for the 2012/2013 financial year from a previously approved hike of 25.9%.

The decision follows Eskom’s application to reduce the hike after the utility was asked by the government to ease up on private and industrial consumers—hard-hit in recent years with soaring power costs.

Energy-intensive users, including the mining industry, have long said the steep increases were making some of their operations unsustainable.

Cash-strapped Eskom has been struggling to raise the money it needs to build power plants quickly in an attempt to avoid a repeat of a crisis that forced mines to shut for days in 2008 and cost Africa’s biggest economy billions of dollars in lost output.

The reduction will result in a loss of revenue of R11.15-billion, the regulator said.

Stemming economic growth
In 2010, Eskom was granted three years of 25% annual rises in power tariffs and was expected to apply for two more similar increases after that.

Only from 2016 were tariffs expected to rise in line with inflation but President Jacob Zuma said in February that he had asked Eskom to seek options to limit the increases in rates to ensure they would not stem economic growth.

“Our concern has been that a further electricity price hike would hurt the consumer significantly and because it’s been such an important part of the growth story in South Africa we could then see an effective slowdown in our economy,” said Kevin Lings, chief economist at Stanlib.

Eskom has been widely criticised for fuelling inflation.

Inflation breached the central bank’s 3% to 6% target in November and has been outside its target band since.

The bank expects inflation to remain outside the target band throughout 2012, peaking at 6.6% in the second quarter and move back to within the band in the first quarter of 2013.—Reuters