23 November 2012

South Africa: Eskom Cannot Be Allowed to Kill Consumers

Photo: Chris Kirchhoff
Beaufort West, Western Cape province: Electricity pylons.

press release

On Thursday I met with Mr Thembani Bukula of the National Energy Regulator (Nersa) to present the DA's position that Eskom's price-hike application of 16% per annum for the next five years is unaffordable for both business and consumers, and contains seriously problematic assumptions.

Nersa must therefore stand its ground and ensure that Eskom is only granted an inflation-linked price increase.

Any increase above inflation will drive the very inflation that South Africa has to avoid. Inflation undermines consumers' already-limited disposable income. The latest income and expenditure survey results show that South Africans spend, on average, 32% of their income on electricity, almost double the 17% spent on transport. Poor South Africans are most at risk and must be protected.

Inflation also places upward pressure on interest rates, further undermining much-needed investment in the economy. Eskom assumed a 1.9% compound growth per annum in electricity demand over the next five years, but electricity demand has slumped by 2.9% over the last six months alone. Its pricing application therefore stands in stark isolation from economic reality.

Eskom claims that 17% of its new revenue requirement is attributable to earning a higher return on asset of 7.8% for government, its shareholder. This is ludicrous. Government cannot expect this kind of return in a depressed economy, especially not at the expense of economic growth.

The monopoly also claims that a further 17% of its revenue is attributable to 'depreciation of assets increasing at 10% a year'. But Eskom has not provided any evidence for how it arrived at this figure or of how it has evaluated its assets. Some experts argue that they have severely inflated the purported cost of replacement of these assets.

A significant portion of 34% - R374bn - of Eskom's 'revenue requirements' therefore seems somewhat spurious to us and should be rejected.

The DA will continue its call for an alternative pricing model in which consumers and businesses are not made to pay for inefficient capital expenditure programmes by a monopolistic state-owned energy provider.

Eskom seems to pay no mind to the negative consequences of their perpetual quest to squeeze money from ordinary South Africans and potential job-creators. We trust that Nersa will do its job and prevent above-inflation price hikes.

David Ross, Shadow Deputy Minister of Energy

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