South Africa’s energy crisis has deepened further as public anger grows over lack of power supply amid rising electricity costs for both consumers and business industry.
This comes after Eskom was given the green light to hike electricity tariffs by a cumulative 31.4% over the next two consecutive years, beginning on April 1, in spite of the worst ongoing power cuts to date.
The National Energy Regulator of South Africa (Nersa) last week granted Eskom a 18.65% electricity tariff increase for the 2023/24 financial year and 12.74% for the 2024/2025 financial year, in a bid to recoup an allowable revenue of more than R318 billion and R352bn for both years, respectively.
Nersa said its decision reconsidered capital-related costs for Eskom when compared to the previous decision, which would significantly contribute to allowing Eskom to recover costs related to debt commitments.
However, Nersa’s decision has been widely rejected and criticised as a “step in the wrong” direction as consumers buckle under the weight of rising cost of living and high levels of joblessness.
Energy-intensive industries such as manufacturing, agriculture and agro-processing, and mining will be hardest hit by the double whammy of rising costs and record-level power cuts.
For mining, the deepening electricity crisis will be felt at processing, smelting and refining plants, while mines need absolute energy certainty when sending employees underground to ensure they can safely return to the surface.
Smelters, which were already experiencing uncharacteristic trips as they were not designed to operate under these conditions, require sufficient time to ramp down as sudden loss of power will result in catastrophic damages.
The Minerals Council South Africa said it was dismayed by the above-inflation electricity tariff increases granted to Eskom, and the negative consequences for the economy and employment.
Minerals Council chief economist Henk Langenhoven said these increases will fundamentally shift the intermediary cost structures in mining.
Langenhoven said that electricity will make up about 12.5% of South African mining costs by the end of 2024, from about 9% now.
“Due to the different electricity consumption densities of various mining commodities, the impact is not the same across the sector, but this is deeply concerning,” Langenhoven said.
“The adverse operating environment of unreliable and expensive electricity, and a crisis in transport logistics for bulk mineral exports erode the mining sector’s global competitiveness and may very well culminate in job losses in mining.”
Langenhoven added that the price of electricity for the mining industry has increased eightfold since 2008, while consumer prices have only doubled.
He said the consequences of the latest tariff increase must be seen in the wider mining sector context as they could add 4 percentage points to average input costs, which were above 15% at the end of 2022, materially squeezing profit margins.
Eskom has welcomed the electricity tariff hike as a move that will help to shore up its perpetually constrained finances, saying it appreciated the tough decision made by Nersa.
“This decision will positively contribute from a financial and sustainability point of view,” said Calib Cassim, Eskom chief financial officer.
“The revenue determination of R319bn and R352bn for the financial years 2024/25 will allow a further migration towards a price level that reflects the efficient cost of producing electricity.”
According to the new tariffs, consumers will now fork out R1.73c per kilowatt hour in the 2023/24 financial year, from R1.46c/kWh last year, increasing to R1.95c/kWh in the 2024/25 financial year.
Efficient Group chief economist Dawie Roodt reiterated on Friday that Eskom be placed under business rescue because it was overstaffed by more than 20 000 workers while failing to recoup more than R60bn owed by municipalities.
Roodt said the whole set up, and everything that has to do with electricity in South Africa at the moment, is wrong.
“Nersa just gave an increase of more than 18% while Eskom was asking for 32%. None of them, not Eskom or Nersa know what the right price increase should be.
“Nersa may have a role to play, but only under normal circumstances. But what we have now is not normal at all. Nersa is supposed to give an increase in line with the cost increase, but that’s not what’s happening.
“Nersa is giving an increase in order for Eskom to be able to cover its debt and pay interest on debt., which has become unsustainable. Nersa should not even be in the picture at the moment, let alone the fact that they cannot even calculate the correct price because nobody knows.
“The unfair part about this is that the increasing electricity is to pay for interest on debt, for the increase in the wage bill, which is unrealistic, and they use this increase to pay for other municipalities that don’t pay for electricity.”
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