18 October 2012

South Africa: Eskom Helping Government to Double-Tax South Africans

Photo: Chris Kirchhoff
South African electricity pylons.

press release

Eskom is due to submit its application for electricity tariff hikes to the National Energy Regulator (Nersa) today for the Multi-Year Price Determination (MYPD 3). News reports indicate that the parastatal will be requesting a 14.6% hike each year for the next five years. This is nearly triple current inflation and runs against all economic sense. Even the Reserve Bank governor Gill Marcus has warned that Eskom's pricing application should be inflation-related.

The DA has repeatedly written to and met with the regulator, Thembani Bukula, to urge Nersa not to accept Eskom's proposals, given the parastatal's propensity to inaccurately inflate its costs in the pricing formula.

At present, Eskom abuses the formula for determining administered prices. For instance, it includes government's expected return on assets (ROA), stipulated at 8.16%. This is a ludicrous return for government to expect as it is not a shareholder in the real sense of the word. Eskom is not operating under market conditions and requires perpetual guarantees from government (supported by the very taxpayer that is paying outrageous electricity tariffs). If this return was ring-fenced for electricity infrastructure maintenance it may be marginally acceptable. This is, however, not the case.

Eskom is therefore complicit in allowing government to double-tax South Africans as this ROA goes into the fiscus. This is rent-seeking at the expense of economic growth and job creation. It simply cannot be tolerated.

It is also clear that Eskom does not pay sufficient attention to efficiency, sustainability and affordability in its pricing model. The demand for electricity is more than 2% lower than it was last year, reflecting weaker than expected economic growth. Eskom is asking consumers to pay for inefficient capital expenditure, which cannot reasonably be justified. Coal-fired Medupi alone, once financing costs have been considered, will likely produce electricity at a kWh price higher than wind energy and come in at cost overruns of R60bn. Expanding reliance on coal is unsustainable as it comes at the opportunity cost of access to scarce water resources, people's health and affordable electricity.

The DA expects that Nersa will do the right thing and unequivocally reject Eskom's price-hike request. South Africa's electricity crisis will simply not be solved by double-taxing ordinary consumers.

David Ross, Shadow Deputy Minister of Energy

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