Eskom price hike warning

If Eskom’s proposed price hikes are approved, municipal debt to the utility will increase from an already vast sum of R75 billion, and its more affluent consumers will turn to alternative sources of energy.

These were arguments made by South Africa’s municipalities to the National Energy Regulator of South Africa (Nersa) as part of the body’s stakeholder comments process, Sunday Times reported.

Amongst the sentiments expressed by the municipalities is that they may face collapse as Eskom’s sustained price hikes undermine their financial viability.

Eskom submitted its application to the energy regulator for a 43.55% municipal tariff increase for its municipal customers in 2025/26 in late August.

The South African Local Government Association’s (Salga) head of security, Nhlanhla Ngidi, told the Times that his organisation have been rejecting the price hikes for some time.

This has primarily been due to the increased rates causing residents to default on their rate payments and high-paying customers seeking more affordable energy sources.

“All the big corporates and big industries are transitioning as it doesn’t make business sense to accommodate these big tariff increases,” Ngidi said.

However, Nersa has continued to approve them despite Salga’s complaints.

Many metros across the country are feeling the squeeze. The City of Johannesburg says its residents are struggling to afford electricity, forcing the municipality to increase its spending.

Similarly, Buffalo City Metro told the Times that the 657% price increase from 2007 to 2022 has to be passed on to its customers who cannot afford it.

Ngidi recently pointed out that South Africans owe municipalities R347 billion in electricity tariff debt, which will only increase if Eskom’s price hikes are approved.

South Africa’s Human Rights Commission believes that the financial pressure caused by tariff hikes could spark social unrest in the country’s poorer communities, with protests already taking place in Cape Town.

Economist Duma Gqubule told the Times that going about Eskom’s operations with a profitmaking intent would create a “two-tier citizenship where the rich find other means such as installing rooftop solar.”

Gqubule said it was a major mistake to assume Eskom would raise its capital build budget — roughly R700 billion — from its profits.

Eskom’s attempt to do this has been labelled a lazy organisational strategy by Alex van den Heever, a public policy expert at Wits School of Governance, who said it was nonsensical following 300% real tariff increases since 2007.

This was argued following electricity minister Kgosientsho Ramokgopa’s plan to intervene to keep electricity prices low, arguing that a policy intervention won’t solve the problem.

“The tariff increase itself looks implausible and, to be quite honest, a very lazy approach to dealing with Eskom’s financial problems,” said van den Heever.

“So I would believe that there is a strong possibility for a more coherent policy framework and a reconsideration of how they see their finances and financial difficulties going forward.”

He said that Eskom’s 300% real tariff increase since 2007 demonstrates that the power utility has tried to front-load a lot of these real increases and “not done any creative thinking about their business and organisation.”

The power utility provided several justifications for its proposed increase, such as diesel consumption, the rising price of coal, and the requirement for increased maintenance of Eskom’s generation fleet.

Eskom seeking revenue to compensate for its organisational issues, such as inefficiencies and failure to collect revenue, is a result of what government’s strategy has been in relation to the power utility, he said.

Therefore, Van den Heever believes a policy change won’t be difficult, but changing Eskom’s economic model to one that is sustainable will be the challenge and require work in the long run.