Analysts expect the increase in power prices to put further pressure on South Africa's inflation outlook.
Electricity prices are likely to climb after the National Energy Regulator of South Africa (Nersa) announced that Eskom can recoup costs of R7.8-billion incurred during its previous cycle of tariff increases.
Nersa announced this week that it had approved Eskom’s application to recoup under-recovered costs incurred during the last multi-year price determination period, which ended last year.
The decision could see an increase of between two percentage points and five percentage points, which will be tacked on to Eskom’s most recent round of tariff increases of 8% granted over the next five years.
Analysts expect the increase to put further pressure on South Africa’s inflation outlook, at a time when consumer inflation has risen above the South African Reserve Bank’s targeted range of 3% to 6%.
Eskom welcomed the decision – although the amount allowed by the regulator was substantially below the R18.4-billion that Eskom had applied for through the regulatory clearing account.
Charles Hlebela, spokesperson for the regulator, said the public could expect a tariff adjustment, which would begin from April 2015.
The regulator had yet to develop an implementation plan for the adjustment, which would outline how the money would be recovered in the coming years, Hlebela said.
Nomura analyst Peter Attard Montalto, in a research note, said tariffs would increase by between two percentage points and five percentage points, potentially increasing tariffs to 13% overall.
Larger tariff increases played into “existing Reserve Bank hawkishness”, he said. The central bank has warned that it is in an upward cycle of interest rate hikes – most recently increasing the repo rate by 25 basis points to 5.75%.
Inflation figures released by Statistics South Africa last week showed that consumer price inflation in June sat at 6.6%.
This comes alongside declining forecasts of economic growth.
The International Monetary Fund last week cut South Africa’s 2014 growth forecast to 1.7%, down from 2.3% in April, owing to electricity constraints and labour conflict.