The FM is not sure what is more eye-watering: the fact that Eskom is daring to ask for an effective 40% electricity tariff increase for 2025 or that the energy regulator, Nersa, will entertain it using the same methodology that has allowed it to grant collective price hikes of more than 400% since 2010.
These increases have wiped out one of South Africa’s few competitive advantages, that of producing relatively cheap energy, and have contributed to the post-pandemic cost of living crisis that has forced many consumers into debt distress.
If Nersa were to compound this by hiking energy prices anywhere close to 40% next year it would not only scupper the country’s nascent economic lift-off, it would be inviting unbridled social unrest. Just ask Kenya’s President William Ruto.
In June, Ruto was forced to withdraw his finance bill, which sought to increase Kenya’s tax-to-GDP ratio from 13.5% to 20% over three years, after rioting youths brought Nairobi’s business district to a halt and clashed with police, resulting in five deaths.
Back in South Africa the DA has come out swinging, having secured an urgent debate in parliament to address the tariff issue. Its view is that Eskom cannot continue to pass its inefficiencies on to the public.
Amazingly, this is also the view of at least one Nersa board member, Nhlanhla Gumede. He has broken ranks with his colleagues to argue that they have been misapplying the law and failed to strike the right balance between the interests of Eskom, consumers and the supply industry.
The courts would disagree. The law is clear and Nersa’s pricing methodology is clear and where Nersa hasn’t stuck to it, it has been repeatedly challenged by Eskom in the courts and lost.
This is not to say that Eskom has always got the full tariff hikes it has asked for, but even if Nersa grants it only half of the 40% it is demanding, that would still be more than four times the inflation rate. And that would be a huge shock to the economy.
These increases have wiped out one of South Africa’s few competitive advantages, that of producing relatively cheap energy
It is time for President Cyril Ramaphosa to step in and do what Nersa cannot do — put the broader need for affordability ahead of Eskom’s bottom line. If he doesn’t, the country will be in an uproar. The ANC will be eviscerated in the 2026 local government elections, while the DA will look like the champion of the masses.
“These out-of-control tariffs will be devastating to local economies and could lead to job losses, further exacerbating the unemployment crisis,” warns the DA. Even low double-digit increases will “keep inflationary pressures high and force some consumers to choose between keeping the lights on or putting food on the table”.
Businesses and wealthier households will accelerate their adoption of renewable energy. While this would be a good thing for the planet, it would further dent Eskom’s revenue, leading it to demand ever-higher tariffs in a never-ending death spiral.
But even if the government intervenes to keep a lid on further tariff hikes, it will probably cave in and raise Eskom’s bailout at some point. Either way, taxpayers will foot the bill.
The obvious solution when making tariffs cost-reflective is not to increase the price but to reduce the cost component. This means Eskom (and Transnet) must become more efficient producers (sell assets; retrench staff; appoint experts) or vacate the space to private competitors who are efficient.
Fortunately, common sense is ensuring that the latter is finally happening. For the economy’s sake, it can’t happen fast enough.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.