S.Africa: Massive Inefficiency: Electricity: Eskom’s electricity prices should be 75% lower

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Widespread corruption, mismanagement, and an overpaid and bloated workforce mean Eskom is paying R1.5 million instead of R380,819 per GWh it generates.

As Eskom bases its electricity prices on its costs, South Africans should be paying 75% less than it does for electricity.

Last month, the National Energy Regulator of South Africa (Nersa) revealed that Eskom wants to increase electricity prices by 36% from 1 April 2025.

It then wants to increase prices by 11.81% from 1 April 2026 to 31 March 2027 and 9.10% from 1 April 2027 to 31 March 2028.

Eskom explained that it needs to generate revenues of R446 billion for FY2026, R495 billion for FY2027, and R537 billion for FY2028.

The power utility argued that big price increases are needed to improve its financial sustainability by moving to cost-reflective prices.

However, cost-reflective prices do not hold when dealing with a monopoly like Eskom, which is a highly inefficient and corrupt organisation.

The company has a hugely bloated workforce, a widespread waste of resources, and corruption and mismanagement that significantly increase costs.

In the past, Eskom employees gladly approved paying R238,000 for a mop and R80,000 for knee guards. The same goes for poor-quality coal and related problems.

With cost-reflective prices, Eskom expects South African households and businesses to fork out the money to fund corruption and mismanagement.

The best example is the impact of cost overruns at the Medupi and Kusile power stations, closely associated with malfeasance and mismanagement.

Initially, budgets of R79 billion and R81 billion were set for constructing Medupi and Kusile, respectively.

However, fifteen years later, the costs have ballooned. Energy analyst Chris Yelland previously estimated that the costs have increased to R234 billion and R226 billion, respectively.

That means Eskom will pay around R460 billion instead of the planned R160 billion for the two power stations.

This R300 billion overrun essentially bankrupted Eskom. Its financial situation became so dire that it needed government bailouts to stay afloat.

Eskom’s inflated electricity costs
Daily Investor looked at Eskom’s finances to see how much mismanagement, corruption, bloated workforce, and big salary increases added to the electricity price.

In 2006, when the power utility was still well-run, Eskom spent R147,748 to generate a single GWh of electricity.

This generation price included all costs of goods sold, operating expenditure, finance and tax expenses.

Adjusting this figure to the average annual South African inflation rate from 2006 to 2023, it should cost Eskom R380,819 to generate a GWh of electricity in 2023.

However, Eskom’s latest annual report revealed that the cost to generate electricity ballooned to R1,504,467 per GWh.

In other words, Eskom paid around R1.56 trillion more than it should have to produce electricity over the last twenty years.

These additional costs, caused by mismanagement and corruption, are reflected in South Africa’s rapidly rising electricity prices over the last fifteen years.

Simply put, South Africans are being punished for Eskom’s failures. Local businesses and households should pay 75% less for electricity.

The chart below shows how Eskom’s electricity production costs have outstripped inflation over the past 15 years.

Source: https://dailyinvestor.com/energy/65252/eskoms-electricity-prices-should-be-75-lower/

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