Eskom decision expected tomorrow

Tuesday, February 23, 2010

Pretoria - The National Energy Regulator of South Africa (Nersa) is all set to announce its decision on electricity tariffs on Wednesday, writes Neo Semono.

Eskom had originally called for a 45 percent tariff increase, but after strong protests from consumers and businesses alike, they decreased it to 35 percent. In June 2009, Nersa approved an average price increase of 31.3% for Eskom. Eskom had applied to Nersa for an interim price increase of 34%.

According to Investment Solutions economist, Chris Hart, any tariff increase was likely to be passed on to consumers, resulting in even less household income.

"Costs are going to go up as alluded to in the national budget; costs for administrative prices will go up. Eskom is likely to get a 25 percent [tariff increase]," said Hart.

Nedbank economist, Carmen Altenkirch, agreed with Hart in that the increase will reduce household income. However, her bet is that the increase will be between 30 and 35 percent.

"They are likely to get between 30 and 35 percent and this will not only impact households directly but it will have a direct impact on business," she said.

Business, said Hart, will then in turn pass the increases to consumers.

"Business will push the costs to consumers and those who cannot pass the prices on, like mining, will face viability issues."

Managing director of the South African Independent Power Producers Association (SAIPPA), Doug Kuni, said he doubted that Eskom would get the full 35 percent.

"All we can do is wait until the end of deliberations. The increase however will be quite significant," said Kuni, adding that consumers pay 35 cents per kilowatt aggregate of 40000 megawatts of electricity.

Kuni welcomed President Jacob Zuma's statement in his State of the Nation Address that government is to establish an independent systems operator separate from Eskom.

'It is a step in the right direction," said Kuni. "What that means is that there will be a separate legal entity that will be able to contract with IPPs [Independent Power Producers]," Currently this function lies within Eskom transmission and taking that out of Eskom could be time consuming.

At the public hearings into the matter in January, the South African Chamber of Mines said the impact of the proposed hike would affect the different mining and smelting operations differently.

"Electricity in the large scale underground mines, such as gold and platinum mines, is a substantial operating cost and a vital ingredient to providing a sustainable environment for mining activity (especially at the health and safety levels) and for processing activities," said the chamber's Dick Kruger, Techno Economics Assistant Adviser.

"For the South African economy emerging from its first recession in 17 years and faced with anaemic global economic growth prospects, a 35 percent price increase in each of 2010/2011 and 2012/2013 will be extremely challenging to absorb. The likely impact on the economy of a 147% increase in the electricity price over a three year period is material and this will undermine the economic growth, beneficiation, employment and poverty reduction objectives of government," he explained.

Regulator spokesperson, Charles Hlebela, told BuaNews that all is set for Wednesday's announcement.

"The sub-committee comprising four of the regulator's full time members and two part time members held its meeting last Wednesday to discuss recommendations for the application," said Hlebela.

The regulator will hold its final meeting into Eskom's Multi-Year Price Determination (MYPD2) on Wednesday morning ahead of the announcement at noon.