The Steel and Engineering Industries Federation of SA (SEIFSA) is calling for private sector involvement in the provision of power to be expedited without restriction following the hefty compound tariff hike of 31.39% conferred to Eskom last week.
The National Energy Regulator of South Africa (Nersa) granted Eskom an electricity tariff increase of 18.65% that will come into effect in April, as well as a further increase of 12.74% for 2024/2025.
This means the total electricity price increases will be over 30% in the next two years.
Previously, the regulator approved an increase of 9.6% despite Eskom asking for an over 20% increase. Loosely translated, this means consumers will now have to fork out more to pay for their electricity bills.
According to Tafadzwa Chibanguza, chief operations officer at SEIFSA, the tariff hike announcement is disappointing and comes at an unfortunate time when Eskom, the state-owned power utility, is failing to render service to its customers.
“Increases of this magnitude only add to the already high cost of living endured by many South Africans, as well as raising the cost of doing business,” Chibanguza said.
“While it is acknowledged that Nersa has a very difficult balancing act to manage, which amongst others includes ensuring the sustainability of the electricity utility, the timing of the increase is extremely unfortunate.
“The increase is granted at a time when Eskom cannot provide sufficient electricity to its customers, a situation which is expected to continue into the foreseeable future. The indefinite declaration of stage-six power cuts, with customers not having electricity for anything between 10 and 12 hours a day, is extremely damaging to businesses and the economy.”
Cost of doing business
According to Chibanguza, the tariff hike is a knock on the head for businesses and companies that have had to shell out to keep the lights amid rolling blackouts, because they will have to pay more than just the approved amount of 18.65% and 12.74%.
He said the metals and engineering sector, which comprises the upstream and downstream energy industries, will bear the brunt of this hike and the impact will be detrimental.
“The cost of alternative energy solutions for the energy-intensive upstream industries is extremely prohibitive, given their consumption, resulting in these industries being bound to Eskom and exposed to the punitive cost increases.
“While the downstream industries that are relatively less energy intensive are able to make provision for alternative energy solutions, the cost of running these alternatives is equally prohibitive,” said Chibanguza.
Chibanguza said a “long-term implication is emerging” as companies continue to cut back on costs by sacrificing their long-term capital.
“Companies are sacrificing long-term capital that could otherwise be invested in expanding their operations and are spending these scarce resources in pursuit of immediate survival.
“The long-term implications will be a continued structural decline in the performance of the metals and engineering sector, which has already been tracked at a rate of 1.6% on a compound annual basis since 2008.
“Employment in the sector, especially among woman and youth, has contracted at the same pace over the same period, contributing to the socio-economic calamity that the country already faces,” he said.
According to Chibanguza, the country’s energy crises now require an aggressive response equivalent to that applied during the Covid-19 pandemic.
“Only a clear, honest and dogmatic focus on structural reform in the energy sector will move the country out of this crisis
“While multiple efforts in this regard, including the reforms announced by the president in July 2022, are welcome and present a fundamental shift to the management of the electricity supply industry, progress to date has been painfully slow.
“The level of the crisis and the risk to the economy require a response as aggressive as the response to the Covid-19 pandemic. The supply of reliable, consistent, and efficiently priced electricity is not only in the best interest of the private sector but entire South Africa.
“Therefore, private sector involvement in the provision of electricity should be expedited without restriction and delay.”
Also read: Prepare to dig deeper for electricity bill starting in April
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