Eskom price hike blame game

Eskom has blamed the National Energy Regulator of South Africa (Nersa) for a large part of its requested electricity tariff hike for 2025.

Nersa published Eskom’s latest multi-year price determination (MYPD) application for the 2025/26, 2026/27, and 2027/28 financial years towards the end of last week.

Eskom has applied for a whopping 36.15% increase in tariffs charged to direct customers next year, followed by a further 11.81% and 9.10% in the two following years.

Specific prices will only be available once Nersa has announced the approved rates for Eskom and municipalities.

However, based on previous years’ approvals, it seems likely that South African households will see their tariffs jump by well over double the official inflation rate.

Eskom argues that the first ten percentage points of next year’s increase was due to Nersa denying the power utility the massive price hikes it applied for in the past, reports Rapport.

The report also points out that Nersa approved preferential reduced tariffs for ten industries, in line with a government framework. To compensate, Eskom’s residential customers were burdened with higher increases.

Among the customers getting preferential rates are smelters, which incur large electricity bills.

Eskom is at risk of losing these customers — which provide a valuable revenue stream — unless it can sell electricity to them at rates that will ensure they can remain internationally competitive.

While this is good news for industries that contribute significantly to the economy, including through job creation, it contributes an additional six percentage points to the increase proposed for residential direct users.

Eskom’s blaming Nersa is disingenuous, considering the utility’s own poor management and ballooning costs are the biggest contributors to the tariff hikes.

Although Nersa has indeed curbed Eskom’s allowed increases, it still approved significant electricity tariff hikes over the past few years, well beyond the rate of inflation.

Many critics would argue that Nersa had not sufficiently reduced the hikes, but the regulator has repeatedly lost court cases when trying to do so.

The table below shows the tariff hikes Eskom had requested and what Nersa granted over the last three years.

Hikes have little justification

Eskom’s requested increases for the next three years are also well beyond inflation and are curious, considering global wholesale electricity prices dropped from 2022 to 2023.

South Africa’s electricity regulations determine that Eskom’s tariffs should be based on the cost of providing electricity plus a reasonable profit on its assets.

Only effective expenditure can be included in the cost calculation, which is supposed to exclude the impact of issues like corruption and fraud at the utility.

However, using “cost-reflective” pricing is misguided when it comes to monopolies like Eskom.

Firstly, the cost of producing goods and services is highly variable. Secondly, a company with a monopoly can claim costs that are out of touch with those in markets with healthy competition.

Eskom’s real cost drivers are not related to how much it spends on generating, transmitting, and distributing electricity—they are the utility’s bloated workforce, widespread resource wastage, and corruption and mismanagement.

Eskom itself has acknowledged it may be up to one-third overstaffed.

Corruption has seen the cost of constructing Kusile and Medupi power stations surge by tens of billions of rand.

The delay in completing these stations a decade ago, as originally planned, is to blame for most of the load-shedding experienced over the past few years.

Due to the shortfall in coal generating capacity, Eskom’s annual emergency generation expenditure has surged by tens of billions of rand, as it needs to run its diesel-powered open-cycle gas turbines more frequently.

The company has also uncovered procurement irregularities with items being bought at highly-inflates costs — like brooms bought for R238,000 and toilet paper rolls for R26 each.

All these factors have worsened the utility’s ballooning debt, which carries substantial servicing costs that get added to its tariff calculations.

Eskom has warned that the R254 billion the government will provide over the next three years to help service its debt will not be enough to ensure its sustainability.

It is doubtful whether the alternative — continued excessive electricity price hikes granted at Eskom’s whim — would be sustainable for the country as a while.

South Africa’s electricity tariffs have surged by 849.85% since 2007, working out to an annual compound growth rate of 14.16%, well over double the rate of inflation over the same period.

Despite this, Eskom’s tariffs are still 10% to 20% below its costs.