The hefty hikes in power prices that were approved by the National Energy Regulator of SA (Nersa) this week are set to negatively affect already cash-strapped consumers and the economy at large.
Eskom had sought three hikes in power prices of more than 15% over the next three years.
Instead, Nersa granted the power utility three annual power price hikes of 9.41% this year – which, on top of the 4.4% hike that Nersa already approved from April, translates into an increase in the 2019 electricity tariff of 13.81% – followed by 8.1% for 2020 and 5.22% for 2021.
Thus, over three years, power prices are set to increase by almost 30%.
This comes in the middle of a stagnant economy, which grew by just 0.8% last year.
Ronald Chauke, portfolio manager on energy at the Organisation Undoing Tax Abuse, said consumers would be hit hard by the steep hike in power prices, and the issue of failure to pay electricity bills would be exacerbated.
These increases in power prices, together with Eskom’s unreliable power supply, will have the effect of reducing economic growth.
Nedbank economist Isaac Matshego said the bank had initially forecast 1.3% growth this year, up from 0.8% in 2018.
However, given the newly announced power price increases, this growth could be reduced, he said.
Matshego added that the power price hikes would boost inflation and put upward pressure on interest rates.
Investec economist Annabel Bishop said that Nersa’s decision, coupled with the higher petrol price, would lift local inflation from the second quarter of this year.
However, she expected interest rates to remain flat.
Jobs were likely to be cut in small, marginal or loss-making businesses as a result of the impending higher power prices as these increases would lead to higher costs, Matshego said.
The new power prices will reduce already embattled consumers’ disposable income and add to their woes, given the large increase in petrol prices in March as well as the introduction of higher taxes, including a higher fuel levy, from the beginning of April. People will also face reduced job security.
Both business and labour reacted negatively to the Nersa-approved electricity price hikes.
Business Unity SA (Busa) said it was concerned by Nersa’s decision as the unintended consequences might result in a further decline in Eskom’s customer base, as users sought more reliable and cost-effective alternatives – exacerbating the power utility’s downward spiral.
The Steel and Engineering Industries Federation of SA (Seifsa) said it was “bitterly disappointed” by Nersa’s decision.
Seifsa economist Marique Kruger said the direct effect on electricity-intensive sectors carrying high job numbers would be alarming, since more companies might close down.
The SA Federation of Trade Unions (Saftu) said that it was “utterly disappointed” and that it rejected Nersa’s decision to increase tariffs “way above the rate of inflation”.
“This latest round of increases represents yet another assault on the living standards of all South Africans, but more so the poor and the working class,” Saftu said.
Labour federation Cosatu said: “Workers and their families are already reeling from an increase in fuel, food and other basic necessities. South African consumers cannot afford this tariff increase, and more families will be plunged deeper into debt and poverty.
“This is also bad because municipalities will still add their own surcharge on top of this. It is very unfair for municipalities to fail to pay Eskom, while putting a huge mark-up on top of the electricity tariff, making electricity unaffordable for many poor households,” Cosatu said.
The hikes were catastrophic amid real unemployment of 36%, with more than 13 million people living below the poverty line, Cosatu added.
In another ominous sign for Eskom, local power output fell in January by 2.1% year on year, after falling by 1.6% year on year in December – making it even more difficult for the power utility to earn the revenue it needs to balance its books.