Eskom has applied for a further R38bn of revenue to be generated through electricity tariffs and it is currently under consideration by energy regulator Nersa.
If granted, it will result in a total tariff increase of around 25% at the beginning of the next financial year, economist Mike Schüssler told Moneyweb.
Acting Eskom CEO Brian Molefe said Eskom will be submitting a further application for the recovery of expenses during the following year – 2014/15. He did not give an indication of the amount of money or extent of tariff increase Eskom may apply for.
He said Nersa did not disagree with Eskom about the principle that it is allowed to recover certain costs, including for primary energy. It merely differed about the timing, refusing to grant the money “up-front.” He said Eskom would submit the further application and hope to prove that the expenditure was prudent, which is a regulatory requirement.
This further application, he said, may only be submitted next year. It will, however be on top of the R38bn Eskom is seeking now.
Schüssler calculated that an increase of R38bn in Eskom’s allocated revenue for 2016/17 will translate into a total average tariff increase of around 25%. That includes tariff increases granted earlier as well as the result of the R38bn application.
He says the South African economy is already in bad shape. Such an increase may lead to a 1% hike in inflation and will have the same effect on the economy as a 1.34% increase in interest rates, he says.
“The effect will be much wider than an interest hike, however. Residential customers, farmers, business and industry will all suffer,” Schüssler says. He says if Eskom’s application is granted, electricity prices will have increased tenfold since 1996. Municipalities will battle increasingly to collect electricity revenue and, as a result, Eskom’s arrear debtors from municipalities and residential customers will deteriorate even further.
Schüssler says approval of the application may see the average cost of electricity for municipal customers increase to 135 c/kWh to 140c/kWh and for farmers to 170 c/kWh to180c/kWh, which will be at about the same level as the highest current time-of-use tariffs.
He says Eskom will be receiving an increasing portion of mining and agricultural revenue.
By Kristy Jooste