/ 16 February 2021

Eskom electricity hikes won’t shock SA’s battered economy — De Ruyter

Nampak Ltd. Chief Executive Officer Andre De Ruyter Interview
Former Eskom chief executive, André de Ruyter. (Waldo Swiegers/Bloomberg via Getty Images)

Eskom will try to avoid sudden large increases in electricity costs, the cash-strapped power utility’s chief executive André de Ruyter said on Monday.

De Ruyter’s statement — made during a discussion on a podcast by the Free Market Foundation — comes two weeks after the National Energy Regulator of South Africa (Nersa) announced it would allow Eskom to recover an additional R6-billion through tariffs. This followed a high court judgment ordering the energy regulator to review its previous tariff decisions.

The tariffs relate to Eskom’s price structure application for the three financial years from 2014 to 2017 and a supplementary revenue application for 2018-2019. At first, Nersa gave Eskom a total of R32.6-billion for recovery. But after the court order, the regulator allowed another R6-billion to be recovered from its customers.

The announcement sparked concerns that steep tariff increases will hurt businesses already reeling from the Covid-19 economic downturn and load-shedding.

On Monday, De Ruyter said Eskom needs cost-effective tariffs to recoup revenue. “Now, the quantum of electricity that we sell has for a fairly long time now remained pretty flat,” he said. 

“And that is attributable to a lack of growth in the economy. There’s a debate going on [about] whether or not this lack of growth is attributable to a lack of reliable electricity, or whether there’s just not enough of a growth driver in the economy.”

But, De Ruyter added, he believes Eskom and Nersa will be able to address the electricity tariff issue “in a way that does not cause a price shock to the economy”. 

Both entities want to avoid causing further distress to households and businesses, he said. Eskom is considering taking a phased approach to recovering these lost revenues, De Ruyter said.

Last week, energy expert Ted Blom projected that Eskom would need to increase tariffs by 25% every year under the current business model. To avoid this, the utility must open up the grid, he told the Mail & Guardian.

Low revenue is not the only factor affecting Eskom’s bottom line. Eskom is labouring under an unsustainable debt burden, De Ruyter said. According to De Ruyter, the utility’s net debt varies between R460-billion and R485-billion.

In his State of the Nation Address last week, President Cyril Ramaphosa emphasised Eskom’s role in the country’s economic recovery.

“The load-shedding of the last few months has had a debilitating effect on our country. It has severely set back our efforts to rebuild the economy and to create jobs,” Ramaphosa said.

“Every time it occurs, it disrupts people’s lives, causing frustration, inconvenience, hardship.”

Ramaphosa added that Eskom’s woes are an inevitable consequence of its inability over many years — due to debt, lack of capacity and state capture — to service its power plants.

Over the next few months, Ramaphosa said, Eskom will implement measures to “fundamentally change the trajectory of energy generation in our country”. 

These measures include enabling the development of additional grid capacity from renewable energy, paving the way for independent power producers, and negotiating supplementary power-purchase agreements to acquire additional capacity from existing wind and solar plants.