1 November 2017

South Africa: Eskom's 19.9 Percent Tariff Hike Will Destroy Jobs

press release

The COSATU affiliated-SA Clothing and Textile Workers' Union (SACTWU) has made a submission at NERSA's public hearings on Eskom's tariff application for 2018/19, setting out why Eskom's proposed 19.9% tariff increase should be rejected. The union's research head, Etienne Vlok, told NERSA that Eskom's proposed tariff hike will have a detrimental impact on workers' job security and livelihoods.

The stagnant economy, including the slump in clothing retail sales and lower government demand due to tighter budgets, has had a negative impact on the stability of the clothing, textile, footwear and leather industry. This, combined with the looming credit downgrades and low economic growth forecasts, threaten thousands of jobs. A 19.9% increase will worsen matters significantly.

To quantify the impact of a 19.9% increase in tariffs, SACTWU surveyed the biggest and most important textile factories in South Africa. These factories reported that electricity constituted about 8% of their manufacturing costs in 2007. Following several sharp increases in electricity prices over the last decade, electricity now constitutes almost 14%. Should Eskom's proposed 19.9% increase be granted, electricity will be more than 16% of total manufacturing costs. With electricity costs increasing much quicker than other costs, companies' ability to pay wages and for inputs and supplies are squeezed.

A 19.9% increase in one year is so significant that it will have the following consequences:

Textile factories, that have very little supplier power in the CTFL value chain, will have to absorb the price increases, which will threaten the already ultra-low margins seen in the industry.

If price increases are passed on, customers, including retailers, will turn to imports.

The above will tip struggling factories into freefall and will be a catalyst for retrenchments and factory closures.

In light of the above SACTWU called on NERSA to reject the proposed electricity tariff increase and to consider any increase only once all allegations of mismanagement and the misuse of funds at Eskom have been finalised.

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