NERSA commits to inflation-linked electricity price hikes

David Ross, Shadow Deputy Minister of Energy
1 August 2012

On Wednesday, the National Energy Regulator (Nersa) confirmed to parliament’s portfolio committee on energy that they will adopt the DA’s proposals that future electricity tariff increases must be inflation-related. This is a serious breakthrough and recognition at the highest level that the current electricity pricing model is incongruent with our national priority to grow the economy and create jobs.

The DA will be holding Nersa to its word and doing everything we can to ensure that consumers do not end up paying for Eskom’s capital expenditure. Electricity is a critical input for small and medium sized businesses – the most labour-intensive sector in South Africa. Making it unaffordable therefore directly kills jobs and saps disposable income from already-stretched households.

Eskom’s Hillary Joffe confirmed that Eskom’s alleged (leaked) request to Nersa for a 14.6% tariff hike over the next five years includes the full cost of planned capital expenditure for new electricity generation capacity (they want to raise R1 trillion). The cost for new coal-fired power stations Medupi and Kusile alone is R91.2bn and R118.5bn respectively. The DA has long argued that consumers should only be made to pay for consumption, not capital, especially in light of available alternative funding models for the latter - such as the issuance of Eskom bonds internationally.  

Given today’s events, the DA expects that Nersa will unequivocally reject Eskom’s 14.6% request. South Africa’s electricity crisis will not be solved by placing a further financial burden on small businesses and ordinary consumers. We also call on the Department of Energy to formulate an inflation-linked multi-year-price determination policy to replace the current energy pricing model.

Making consumers pay for Eskom’s legacy of poor generation planning is unethical at best and economically senseless at worst. South Africans have been subjected to 24.8%, 25.3% and 16.09% over the last three years. In an economic environment already subject to high inflation, the added cost burden would be unaffordable and fundamentally destructive to economic growth.

South Africa scores a dismal 124th place for ‘getting electricity’ in the World Bank’s 2012 Ease of Doing Business Report. Without electricity, our economy cannot grow and no serious dent can be made in unemployment. It is the single biggest service delivery crisis facing South Africa, but tariff hikes will only exacerbate the problem. Nersa must therefore do the right thing and stick to its word.