Eskom, municipalities rake in ‘obscene’ profit

2012-12-09 10:00

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Municipalities want an average of 17% more for power in the current financial year

While consumers groaned under the burden of the rising cost of living and a mountain of debt, Eskom and local authorities made huge profits of R13 billion and R17 billion, respectively, from electricity this year.

This “obscene” profit margin and the fact that there is no limit on municipal surcharges are the major causes of South Africans’ financial problems, says economist Mike Schüssler of economist.co.za.

Despite this, municipalities want an average of 17% more for power in the current financial year.

Eskom recently applied to the National Energy Regulator of SA (Nersa) for a 16% tariff increase each year for the next five years, which will see the cost of electricity doubling.

Schüssler said municipalities already foresaw that electricity was expensive and that bad debt would rise by nearly 52%.

As much as 40% of all outstanding debt older than three months is owing to local authorities and Eskom, precisely because people cannot pay for electricity.

Municipalities’ electricity rates vary so much from one another that you can save hundreds of thousands of rands simply by moving from one place to another, a study by the Energy Intensive Users’ Group, a coalition of major industries, has found.

The research was conducted by Schüssler on behalf of the Energy Intensive Users’ Group and Sasbo, the union for the financial sector.

For example, the annual power bill of an average household running a small business is R25 000 higher in Cape Town than in Durban.

The same amount of power is about R5 000 cheaper in Johannesburg than in Cape Town.

The Energy Intensive Users’ Group also found that Eskom’s general business rate was 55c/kWh, but in Cape Town, small businesses pay as much as R1.44 per unit plus VAT.

Industrial consumers, on the other hand, save an average of R224 800 a year if they have their business in Cape Town rather than in Johannesburg. Cape Town’s metro council also sells this power for R137 500 less to industries than the eThekwini metro council does in Durban.

Eskom’s industrial price for electricity is 50c/kWh, but in metropolitan areas such as Tshwane, it is pushed up to 89c/kWh, 97c/kWh in eThekwini and R1/kWh in Mangaung.

The Energy Intensive Users’ Group also found in a survey among 42 metal smelters that their power rates differed by as much as 50%, depending on their location and on who supplied the power.

Of the 178 municipalities in the country that supply power, 18 applied to Nersa for authorisation to increase electricity rates by more than Nersa’s recommended 11.3%. These have all been approved.

Electricity rates in some cases amount to 30% to 40% of municipalities’ income. This is often their largest source of income and in small municipalities, sometimes the only source of income.

“The consumer is now being squeezed to death by Eskom and municipalities making excessive profits from the distribution and sale of electricity,” Schüssler said.

“Municipalities sell electricity to supplement their income and to fund other services.

“They also rely on their electricity revenues as a kind of insurance against bad debts from desperate consumers who are no longer able to pay for it.”

Domestic power is already among the most expensive in the developing world, says Ben Venter, deputy general secretary of finance union Sasbo.

“The sudden increases in electricity tariffs have already destroyed many smaller businesses, and are now leading to more defaulting and even a fall in the demand for electricity,” Venter said.

“South Africa has lost its competitive advantage as far as cheap power is concerned. Municipalities can also no longer attract large industrial projects because of their exorbitant power rates,” he said.

Mike Rossouw, chairman of the Energy Intensive Users’ Group, said it was also found that industrial electricity prices had shot up by more than 250% since 2002, the highest increase of its kind in the world.

No business can absorb such shock increases year after year, he said.

“South Africa has moved from being the cheapest industrial power utility to number 18 on a list of 36 countries, our research shows. Any further increases will mean that no mineral beneficiation can be done.”

Eskom spokesperson Hilary Joffe said that Eskom was very concerned about the additional burden that municipalities were placing on consumers and that municipalities were not maintaining their electricity infrastructure.

- City Press

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