SARB: Further inflation if Eskom gets its way on tariffs

Marius Swart, Shadow Deputy Minister of Finance
19 November 2009

In response to a question posed by the Democratic Alliance during today's meeting of the Standing Committee on Finance, the South African Reserve Bank (SARB) unequivocally stated that the consumer price index (CPI) inflation rate will rise significantly beyond its current level of 6.1%, and remain well above the targeted maximum of 6%, if Eskom were to increase electricity tariffs by 45% for each year for the next three years. However, a senior SARB official stated this will not be the case if Eskom kept to its initial tariff increase proposal of 25%. In other words, South Africa’s inflation rate could settle to within its target range if it were not for Eskom’s possible 45% increase.
 
This is clear evidence that Eskom needs to rethink the funding model of its current running costs and future capital expansion. There is no doubt that Eskom needs to raise a large amount of capital, with the 45% tariff increase being but one option to achieve this. The problem is that Eskom is treating the tariff increase as a fait accompli without considering other ways of raising the capital such as borrowing or partial privatisation.
 
The DA is of the position that privatisation of electricity generation of the parastatal is urgently needed to address the funding problem. This will also mean that taxpayers would no longer have to keep on bailing out the utility. 
 
The poor are most heavily affected by high inflation in South Africa, which makes the case so much stronger for a tough stance on inflation. This was reiterated during the committee by the DA. Consumers across the economic spectrum will ultimately pay for the gross mismanagement of Eskom due the inflationary effect of the tariff increases. The DA will be submitting proposals to NERSA (National Energy Regulator of South Africa) on the matter.