It was announced this week that consumers are going to have to face another increase in electricity tariffs, adding at most, five percent to the already increased tariff of eight percent. Can South African’s continue to sustain Eskom as it turns to us to buffer its losses? Is it time for privatisation in the sector? Are electricity prices as high as we think they are in South Africa? For answers to these questions and more, Alec Hogg talks to Muneera Salie, who’s the Industry Analyst for Energy and Environment at Frost & Sullivan. – LF
ALEC HOGG: The National Energy Regulator of South Africa has made a decision to allow our power utility Eskom, to recover close to R8bn in the losses that it’s made from consumers. Yesterday, we had the man from NERSA in the studio with us. He said that it was going to bump up that eight percent increase, which has already been agreed upon, to somewhere between ten and 13 percent. Muneera Salie, who’s the Industry Analyst for Energy and Environment at Frost & Sullivan, is with us in our Cape Town studios. Muneera, just to maybe pick up on that, the increase – eight percent was already going to be quite tough for industry above inflation – and now you’re going somewhere between ten and 13 percent. From where you’re sitting – because you watch this closely – was it anticipated?
MUNEERA SALIE: If we look at the current situation in the country…if you look at municipalities, for example, they currently owe Eskom approximately R3bn and they’re defaulting on payments for more than R3bn. If we look at that as well as when NERSA sets the tariffs, it’s all based on assumptions and predictions. Obviously, what happened during the 2010 to 2013 period was that Eskom was unable to generate enough cost recovery, based on the tariff that was set. At the end of the day, Eskom doesn’t have a choice in the matter in what they are currently doing and it’s something that needs to be done in order for them to make up for the cost recovery in terms of having to let the consumer pay for what they weren’t able to generate.
ALEC HOGG: That’s an interesting point you make: municipalities have not been paying Eskom so as a consequence, the good people – the people who are paying their accounts – now have to meet those shortfalls. It doesn’t seem fair.
MUNEERA SALIE: It doesn’t seem fair. The question that remains is for how much longer Eskom’s customers or the consumer will be able to afford these tariff increases and many taxpayers might feel that by paying their accounts, they are being penalised for doing what they’re supposed to be doing and having to make up for those people or municipalities that are defaulting on their payments. I think this is something that needs to be looked at as well in terms of Government. There’s obviously mismanagement in the municipalities in the way they are doing or running their business or running the show, and it’s something that Government needs to look at. On the other hand, because the electricity industry in South Africa is monopolised by Eskom, which is a public company, they are able to apply for these cost recoveries and increases in tariffs that forces the consumers to pay for the money since it’s mostly generated by them.
If we look at maybe privatising the electricity industry in South Africa, this would perhaps force Eskom to have a more efficient (if you can say so) business process. It would allow them to be able to have a proper or a more efficient debt collection system and maybe change the way the electricity industry currently is in the country.
ALEC HOGG: We often hear about South African electricity being cheap, relative to those elsewhere in the world. Is that still valid?
MUNEERA SALIE: Yes. I think those details have not been cost reflective in the past, so they might be cheap when you compare the tariffs that are available across Africa. However, we have to look at the amount of disposable income that South Africans actually have to be able to pay or keep up with the increase in electricity. If we look at the manufacturing sector for example, already 150,000 jobs have been lost in the sector alone. Obviously, tariffs play a huge role in the economic growth and sustainability of an economy in a country. These increases are more than likely not going to positively aid in South Africa’s economic growth. Looking at normal consumers, they’re not going to have much disposable income for things like saving for retirement, for example. It’s a very tricky situation. Yes, the tariffs are cheap. However, but can South Africans really afford to keep up with the increases?
ALEC HOGG: I guess another reason why the tariffs are cheap is that Eskom, together with Sasol, pump out 80 percent of our carbon emissions so if these old Eskom plants in particular were housed in Europe or North America, they would have to have some substantial additional investments to make sure that those carbon emissions were reduced.
MUNEERA SALIE: Yes, that’s a very interesting point that you make. I think that it also comes down to the business model and the way the electricity sector is run in South Africa. It’s monopolised by one company and once again, bringing in smaller (or private) companies might change the situation.
ALEC HOGG: Fascinating insights there from Muneera Salie, who’s Industry Analyst for Energy and Environment at Frost & Sullivan Africa.
