allAfrica.com: South Africa: Dim Promises (Page 1 of 1)

IS HE just playing politics? Or does he really not understand how the economy works?

Public Enterprises Minister Alec Erwin keeps promising to protect the poor and small businesses from the effect of Eskom's proposed 60% electricity tariff hike , but neither he nor anyone else can deliver on that promise. The government may succeed in implementing specific measures to "soften the impact of the tariff increase" for low-income households and small and medium enterprises, as Erwin's department says it will. But it cannot insulate the poor from the broader effect so steep a tariff hike would have.

It's not households that are Eskom's big customers, it's businesses, particularly in mining and in manufacturing. For energy-intensive enterprises such as mines, smelters and steel makers, power is a big part of the cost base and a big tariff increase in one year will hit hard. It could have a big effect on the bottom line of other firms too, especially if higher power costs can't be passed on to customers because of slowing demand or intense competition. As it is, aluminium smelters and some mines have already floated the idea of cutting production and possibly even jobs because they can't get enough power. It could be a double whammy for firms if they have to contend with both less and much more expensive power. And if they also have to contend with higher interest rates, it will be a triple -- and given that a 60% tariff increase could raise inflation by at least two percentage points at a time when it's already well above the target range, further interest rate increases must be a real possibility if Nersa awards Eskom the increase it seeks.

Of course, higher tariffs will help to force firms to use energy a lot more efficiently. SA's electricity tariffs have been way too low for way too long, in large part because of the government's failure to invest in new power stations and bring private sector suppliers into the market. The result is that SA's growth path has relied far too much on energy-intensive industries and energy-wasting habits. That must change. And faced with steep increases, many will find a way to save on power. But for some that may mean cuts in output and perhaps jobs. In any event, most firms can't adapt instantly, and while the economy is finding ways to adapt , the poor and small businesses will suffer the effects at least as much as everyone else.

So it's disingenuous, at best, for the government to give the impression the poor will somehow be exempt from what is, in effect, the fallout from the policy and management mistakes of the past. The government has failed to deliver on its 2004 promise to lower the costs of doing business in SA; what we have is the opposite. The developmental state isn't looking too good either, if state control of power is an example of it.

Most worrying, perhaps, is that there is no clarity at all on what electricity pricing might look like in the next few years. Erwin told legislators this week that electricity prices "probably" had to double in two or three years. That's pretty vague stuff. And in the midst of a power crisis, the last thing corporate SA needs is more policy uncertainty and further hints that those in charge don't quite know what they're doing. Surely the government and Eskom should by now have a handle on how much is needed by way of tariff increases and over what period. Because we'd sure like to know.

web allafrica.com	Enter your search terms	Submit search form
OR subscribers use AllAfrica's premium search engine


Use our pull-down menus to find more stories