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Frost & Sullivan comments on Nersa tarriff Increases

Frost & Sullivan comments on Nersa tarriff Increases

“On Wednesday, National Energy Regulator of SA (Nersa) announced that it had approved the regulatory clearing account (RCA) for Eskom.

This adjustment was given in order to provide Eskom with an additional R7.8bn in revenue from its customers. The utility had originally applied for a cumulative RCA balance of R18.3bn, and allows Eskom to adjust for over- or under-recovery of revenue, as any price determinations are originally based on predictions and assumptions. Nersa has stated that the additional tariff increases have been granted to compensate for variances in the coal price, lower than expected sales revenue during 2010-2013, and differences in the actual inflation rate as opposed to that which was assumed when the original tariff of 8% was determined. 

In order for the additional R7.8bn to be recovered, South Africans can expect to see a tariff increase of between two and five%, to be implemented during the 2015/2016 financial year, above the already granted 8% increase. This translates to a tariff increase of between 10% and 13% which is way above inflation.”

“Being a public company that monopolises the industry, Eskom’s business model allows them to be able to absorb under-recovery of revenue from their customers. An increase in competition in the form of private sector companies into the industry would force Eskom to rethink their business model. The question that remains is for how much longer the average consumer will be able to pay for, or afford, these tariff increases. Currently, municipalities across the country owe Eskom approximately R3bn. Taxpayers that are paying their accounts every month might feel that they are being unfairly penalised by having to compensate for those customers that are defaulting on payments. Privatisation of the industry would allow Eskom to develop a more efficient system with a more accurate invoicing and debt collection system.”

“The additional tariff increases are potentially unaffordable for the average South African consumer. It is also expected that businesses will suffer, with many companies already taking drastic measures in order to remain profitable. Tariff adjustments play a large part in the sustainability of the South African economy and this additional increase is unlikely to aid in economic growth. The announcement of these expected tariff increases also comes amidst the statement made by Statistics SA earlier this week that the unemployment rate in South Africa has reached its highest level since 2008 at 25.5%, 4% higher than the unemployment rate at the end of 2008. The negative effect that these tariff increases are expected to have on local businesses is unlikely to improve the gloomy state of the employment rate in the country.”

Comment provided by: Muneera Salie, Industry Analyst for Energy & Environment at Frost & Sullivan Africa

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