Without a bailout Eskom must hike electricity prices over 30%

Eskom’s 32% tariff increase application is likely the result of South Africa’s National Treasury refusing to bail it out anymore, according to political and economic analyst Dale McKinley.

In a CapeTalk interview, McKinley said Treasury had “turned off the subsidy tap”, leaving Eskom with little leeway to increase revenue.

He explained that he sees no justification for a 32% price hike in political or social terms. However, he said it’s a reasonably simple equation in economic terms.

“Eskom has gotten to a point where it’s so hobbled — the coal-fired power stations are so old, so decrepit,” McKinley said.

“Raising tariffs is their main form of revenue generation, irrespective of the outrage that would accompany that given the services and the state of the utility.”

“That’s the bottom line unless we’re willing to pump a lot more money in [to Eskom],” he added.

McKinley said subsiding fuel prices in South Africa could help to solve the energy crisis but added that there could be a lot of resistance to such a move.

“We have had our state subsidised for some time. Now, I’m not talking about subsidising and their corruption and mismanagement. I’m talking about subsidising the fuel price,” he said.

He added that people might reject fuel price subsidies because it could be considered market interference.

Regarding the energy sector in its current state, McKinley explained that big players like BP and Shell have been making billions in profit on the back of rising prices.

“You could have a strong case to say that Shell, BP, and all of the big boys could absorb a lot more of that, and we could have much lower energy prices,” he said.

“But we don’t. We say that’s the market.”

However, McKinely stated that solving such a crisis requires having clear priorities.

“You’ve got to make priorities. Is the priority the consumer? To get people through a crisis? Is the priority to spend money in your budget to help people?”

“Or is the priority to basically act as though everything is going to be okay? We really don’t care about the consumer, let’s just let them feel more pain, and we’ll spend our money elsewhere?”

He said that part of the South African government’s failures includes failing to make tough political decisions for fear of upsetting the private sector.

“These are tough decisions and are probably going to upset a lot of different people, particularly in the private sector, because it’s going to mean less profit,” he said.

“That’s the price we’re paying for being in a crisis, and I think these are the kinds of decisions that our politicians are seemingly not willing to make.”

Outa slams Eskom’s proposed tariff increase

Eskom recently updated key assumptions in its revenue application to the National Energy Regulator of South Africa (Nersa), asking for a 32.02% electricity price hike from 1 April 2023.

The Organisation Undoing Tax Abuse (Outa) has called on Nersa to limit Eskom’s tariff increase to inflation as indicated by the consumer price index.

“Outa calls on Nersa to grant a maximum of a consumer price index (CPI) tariff increase; if the economy is to recover from Covid, electricity needs to be kept to an affordable level in order to be an economic enabler,” its submission to Nersa reads.

“Eskom’s business interests cannot be allowed to jeopardise economic recovery, and it is in Eskom’s own interest to grow the economy in order to grow electricity sales.”