Electricity price hikes announced for South Africa

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The National Energy Regulator of South Africa (Nersa) has approved a 9.6% tariff increase for Eskom.

In a presentation on Thursday (24 February), the national energy regulator’s chairperson Nhlanhla Gumede said this figure constitutes a 3.49% increase for the 2022/23 year, alongside legacy costs from previous years.

Gumede said this increase was decided on to balance the interests of the economy, consumers, and the utility. The price hikes will take the average electricity tariff in South Africa from just over R1.33 per kWh to around R1.46.

The increase will take effect from 1 April 2022 for Eskom customers. This is separate from the increase that municipal customers can expect to pay which will take effect from 1 July 2022.

Eskom had pushed for a 20.5% tariff increase for the 2023 financial year, warning that the hike is necessary for the continuation of its operations.

The power utility said the increase was partly being driven by purchases from independent power producers (IPPs) and carbon taxes – two costs that are outside of Eskom’s direct control. These two costs alone make up around 13.8% of the requested increase, it said.

The group has also indicated that it plans to ask for a further 15.07% increase in 2024 and a 10% increase in 2025. However, this will depend on the actual increase that Nersa grants Eskom this year, with the regulator rarely giving the power utility the full increase that is asked for.

On 5 March 2021, Nersa approved a hike of 15.06% for Eskom’s direct customers, which was subsequently implemented on 1 April 2021. A hike of 17.80% for municipalities was implemented on 1 July 2021.

Over and above the requested tariff increase, Eskom said it is still dependent on further equity support provided by the government to remain a going concern.

Making positive financial strides

Eskom CEO Andre de Ruyter says the power utility has decreased its debt by at least 15% over the past financial year and predicts that it will half its net loss from R18 billion last year to some R9.1 billion this year.

The power utility has incurred debt of at least R392 billion.

Speaking at a meeting of Parliament’s Portfolio Committee on Public Enterprises, de Ruyter explained that Eskom’s results were borne out of stronger financial controls, higher electricity tariffs and reduced costs.

“Our net profit after tax has increased to R9.2 billion for the first half on the back of some strong sales values increases that we saw as we emerged from Covid-19 lockdown. Cost control remains a very strong focus area of this management team and those results are coming through in a very pleasing way also aided by an increase in the tariffs.

“We’ve been able to reduce our debt by some 15% and although our balance sheet remains stressed, we are making good progress in steadily working down the debt within parameters that we have at our disposal,” he said.

The chief executive added that Eskom is cautiously predicting a substantial reduction in its losses for the financial year.

“The R9.1 billion that we’re forecasting, I think we can signal that there is some upside on that. We don’t want to…prior to the end of the financial year give you a number that deals with that. But thanks to improved operational performance from a revenue collection point of view as well as some very good cost control, there is an upside to this number,” he said.

De Ruyter said the enterprise is working with the government and National Treasury to find more ways to cut its debt.

Up to now, Eskom has received at least R136 billion from the government to pay its debt and is expected to receive at least R88 billion in further assistance until the 2025/2026 financial year.

“We’re very grateful for the government’s support to the tune of R31.7 billion that we have received and this remains an essential part of the sustainability of Eskom going forward.

“There is definitely no intention on the part of Eskom management to take advantage of the government, that’s not the plan at all. We do engage regularly with National Treasury and…they part with the money with great difficulty so there’s definitely no free flow of money into Eskom’s pockets [and] we have to put up a very compelling case.

“We do have a very constructive and collaborative relationship with National Treasury and I must thank the colleagues there for working with us to find solutions to the very large debt that Eskom carries,” de Ruyter said.

Source: https://businesstech.co.za/news/energy/562560/electricity-price-hikes-announced-for-south-africa/?utm_source=everlytic&utm_medium=newsletter&utm_campa

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