Power price: Find a compromise

Johannesburg - The ruling party and its labour allies called on Friday for electricity prices to rise only gradually, rejecting the state power firm's appeal for a sharp hike to solve a dire power crisis.

Eskom, which produces about 95% of the nation's electricity, is rationing power in response to a supply shortage that has led to regular and widespread blackouts and sent a chill through industry and investors.

Power cuts in January forced large gold and platinum mines to shut down for five days, pushing world precious metal prices higher. The mines are now operating at 90% to 95% of their normal electricity supply.

As part of its bid to tackle the crisis and fund a R350bn infrastructure expansion, Eskom has requested a revised 53% increase in electricity tariffs for 2008/2009. It had previously received a 14.2% hike.

The African National Congress (ANC) and its leftist allies, however, argue the poor and workers will be unable to afford electricity if regulators approve the request.

There are also fears it would fuel rising inflation, currently over 10%.

"We are convinced that the economy cannot afford that sharp increase in electricity prices," ANC secretary general Gwede Mantashe said at an energy summit in Johannesburg that drew top officials from the ANC, government, business and labour.

He said it would be wrong for Eskom to use price rises to recover from past losses.

Phasing in

Mantashe later told reporters he expected a compromise to phase in price increases over a period of up to five years.

Eskom has blamed its problems on a combination of factors, including the failure of the government to invest in electricity generating plants, maintenance problems at its existing facilities and wet weather that affected coal supplies.

While maintaining that sharply increasing the cost of electricity would put it on a firmer footing, Eskom has said it is willing to look at other options.

President Thabo Mbeki and key ministers initially supported the utility's electricity price proposal but have since backed off in the face of ANC opposition. Mbeki lost the leadership of the ruling party to rival Jacob Zuma late last year.

"It is a fact that electricity cannot be treated as another commodity," Minerals and Energy Minister Buyelwa Sonjica said. "Any price increase, therefore, has to be treated with sensitivity and subjected to consultation with all the affected shareholders."

Eskom's management has played down hopes it could increase electricity supplies quickly and has asked that consumers be patient while it builds new generating capacity.

The utility said on Friday it had awarded a R2.9bn contract to a consortium of local companies to construct the main civil works of its Medupi power station. The total cost of the project is around R80bn.

"Medupi is one of the key installations in Eskom's New Build Programme that is geared towards closing the current supply-demand gap," Brian Dames, Eskom's chief officer for generation, said in a statement.

- Reuters