Free electricity disaster in South Africa

Around ten million households qualify for free basic electricity. However, only two million receive this benefit due to municipal mismanagement.

During his weekly briefing on implementing the Energy Action Plan (EAP), Electricity Minister Kgosientsho Ramokgopa once again highlighted the flaws in South Africa’s electricity pricing policy.

Ramokgopa repeated his call to review the country’s electricity pricing policy as households come under increasing pressure from high energy costs.

Electricity tariff price increases have significantly outstripped headline inflation in the past decade, rising five times since 2008.

The government has implemented a policy of providing poor South Africans with free basic services, including electricity, to relieve the pressure on households.

Free basic municipal services, including electricity, are provided by the government to poor households at no charge. Poor households can get 50 kWh of free electricity per month.

This amount of electricity is enough to provide basic lighting, basic water heating using a kettle, basic ironing, and a small black-and-white TV and radio.

To qualify for free electricity, households need to be on the lifeline electricity tariff, registered as indigent, or qualify for a pensioner’s rebate on service fees.

Households can’t apply for pensioner rebates or indigent statuses if they have any municipal accounts in arrears. However, many households do not receive this benefit despite qualifying for it.

“There is no reliable system that makes it possible to extend that benefit to households that qualify. In some cases, a system is in place, but its management is inefficient,” Ramokgopa said.

“It is not a funding problem. It is an execution problem at the level of municipalities. There is a need for us to find a more reliable way to ensure households receive this benefit.”

Most of the blame can be laid at the feet of South Africa’s poorly managed municipalities, with money from the central government not being used for its intended purpose.

Ramokgopa explained that free basic electricity is completely funded through the national fiscus, with the Treasury granting municipalities money to extend the benefit to households.

However, municipalities mismanage these funds and use them for other purposes that do not alleviate financial pressure on households.

“Municipalities receive these grants, but the money does not filter through to the right people and is redirected to other areas in the municipality.”

South Africa’s municipalities are under immense financial pressure as well due to the country’s stagnant economy, resulting in lacklustre revenue growth.

Aside from ensuring the benefit flows through to the right people, a more fundamental problem lies with the financial sustainability of such a policy.

“You don’t resolve this crisis by just extending free basic services. You resolve this problem by growing the economy. It is a crisis of economic production.”

Without growth, the state’s finances will come under increasing pressure, and the crisis will become more acute.

Energy analyst and managing director of EE Business Intelligence, Chris Yelland, said it is good that Ramokgopa understands the policy of free basic electricity is failing.

“Municipalities misappropriate the money for free basic electricity for poor households in the full view of the National Treasury and government.”

Yelland said municipalities are using the money earmarked for free electricity on things it was not intended for.

“It is effectively robbing the poor and using the money to benefit the municipality,” Yelland said.

The crisis of rising electricity prices has been particularly acute in Johannesburg, with the introduction of a flat fee for prepaid users sparking a wave of protests.

“City Power’s prepaid electricity prices are 76% to 49% higher than those of Eskom, in the range of consumption considered,” Yelland said.

City Power is 100% owned by the City of Johannesburg and is responsible for most of the electricity distribution and retail sales in Johannesburg.

The prepaid electricity price increases of 61% to 33% are 47 to 20 percentage points higher than those of Eskom in the range of consumption considered.

“City Power’s prepaid electricity prices and price increases hit low consumption, and therefore poorer prepaid electricity customers, much harder than those with higher consumption.”

He said this disparity and big increases for poor households are dangerous and may increase the risk of social unrest.

This article was first published by Daily Investor and is reproduced with permission.