Eskom's plan a disaster

14 October 2009

Eskom's latest proposal to increase electricity prices by 45 percent annually for the next three years will have an inflationary effect on the economy and lead to a series of interest rate hikes that could cripple many households and businesses financially.

This was the reaction of economists and consumer groups to an application made by Eskom to the National Energy Regulator of South Africa (Nersa) yesterday in which it proposed to increase electricity tariffs.

This was according to the parastatal's multi-year price determination document, which was submitted to the regulator in Johannesburg yesterday. If approved, the increase will apply from April 1 for directly supplied customers and from July 1 for municipality supplied consumers.

The hikes were likely to help push inflation above the six percent Reserve Bank target mark and interest rates would start rising.

Ina Wilken, vice-chairwoman of the SA National Consumer Union, lambasted the proposal, saying it had come at the worst time for consumers.

She said the government should have stood surety for Eskom's expansion programme, which should have been funded by an international loan.

"It's nice for everybody to climb on a podium and tell us what they have got to do, but the problem is why didn't they do it a year ago when things went bad and we had load shedding?

"I am not very impressed because they are saying if you don't pay we will not be able to give you electricity. We ask the government why must the consumers now stand in and pay extra for the next three years? And we say to consumers they must start using less electricity. Get yourselves a gas stove and get yourself another form of energy. The cost of everything we use is going to increase and we are going to have an inflation figure that is right through the roof and then they will start increasing the interest rates again telling consumers they are spending so much. They are blaming consumers for being so over indebted, but why are they so over indebted? It's because they have to pay so much,"
Wilken said.

National Consumer Forum Chairman Thami Bolani said: "We are horrified, to be honest, because these increases are going to be unaffordable for many consumers. Can you just imagine for a family of four on a salary of R10 000 a month with the electricity prices more than doubling in less than three years? A lot of families right now simply can't cope and if you are going to increase electricity, people are going to be paying more for food and transport. It's just not good for the economy," Bolani said.

Rates

Bolani said his organisation was joining the UK-based International Consumer Research Trust and had asked it to probe whether Eskom's electricity tariffs, as the parastatal has claimed, are in fact cheaper than in other countries.

"They will be coming to help us find out exactly what is happening with electricity and maybe the same thing will happen that is happening with cellphone connection rates. We need to do something scientific to challenge these guys," Bolani said.

Nersa had not responded to questions at the time of going to print.


Efficient Group economist Fred Mitchell said: "We knew that Eskom was under pressure to renew its capital stock and the price hikes were really necessary to keep the lights on in South Africa.

"Even though it's no surprise, it is going to put inflationary pressure on our economy. It will drive up interest rates.

"It will add pressure to being competitive within the international market, so it does not bode well for the export industry especially manufacturing and mining and obviously households will also feel the pain. As consumers you have to pay your bill or turn to alternative energy sources."

Noelanie King-Conradie of NKC Independent Economists said rising administrative prices, among them school fees, property rates, electricity and medical aid, were the main drivers of inflation.

"In the current economic environment consumers have been hit very hard.
We are already paying 50 percent more than we were used to and that takes away from disposable income. Three-quarters of our economic growth is made up of consumer spending.

"It has a ripple effect into quite a few areas, so it is definitely sad news for the consumer on any front (regardless of) what the increase is because it will be anything more than 20 percent and that is significant," King-Conradie said.

Eskom spokesman Andrew Etzinger defended the proposal, saying demand for electricity was projected to rise between 2.6 and 2.9 percent a year and to meet this demand its 40 000 megawatt output had to be doubled before 2020.

Etzinger said demand for electricity had risen 5 percent a year over the past five years although it had dropped by 2 percent last year because of the recession.

"There is an understandable level of emotion around the increases, but as long as the demand for electricity increases in South Africa we have to build new plants. We are spending R385 billion over the next five years," Etzinger said.

Etzinger said after three years "increases should settle down to roughly the rates of inflation to bring the price of electricity in line with the cost of producing electricity.

"Prices will be brought up to international prices and we would also find other participants starting to invest in power plants."

Etzinger urged consumers to download its proposal off its website and to submit comments.

Nersa will hold public consultations before it makes a decision on the proposed increases.

Original Article Link:

http://www.busrep.co.za/index.php?fArticleId=5202514