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SALGA concerns on Eskom’s Tariff Increase Decision



Posted: 07 March 2019

The South African Local Government Association, as a voice of local government, representing all South African municipalities, notes the decision and announcement of the National Energy Regulator (NERSA) on Eskom's tariff Increase for the 2019/20, 2020/21 and 2021/22 financial years as well as the Regulatory Clearing Account (RCA) application for the fifth year of the Multi-Year Price Determination (MYPD3 period).

While NERSA has granted Eskom an increase of 9.41% which is below its original 17% application for the financial year 2019/20, it is SALGA’s view and position that the increase is still high and above the cost of living which will negatively impact on hard pressed small and big business as well as normal South African citizens.  The stark reality is that South Africans will eventually pay for these increases through a pass-through tariff from municipalities.

The decision still poses risks to the country’s economy and to all municipalities, who  are already facing fundamental changes and transition within the energy sector, and coupled with many being cash strapped, losing customers, record high non-payment rates due to ever increasing electricity prices, unemployment and the non- growing economy, the increase places increasing pressure on municipalities’ financial sustainability.

The decision on the regulatory clearing account of 2017/18 for Eskom to recover just over R3 billion instead of over R21 billion from the customer is welcomed with reservations and subject to SALGA analysing the NERSA Reasons for Decision thereof.

The 9.41% increase cannot be viewed in isolation of the existing NERSA decision on the Regulatory Clearing Accounts for 2014/15, 2015/16 and 2016/17 financial years which allows Eskom to increase tariffs by 4.4% , and will be implemented together with this 9.41% increase. Thus NERSA’s decision is effectively allowing Eskom a total 13.8% increase on electricity tariffs in the financial year 2019/20. This is more than double the current inflation rate and clearly unaffordable for both customers and municipalities.

Every tariff increase fundamentally impacts on municipal revenue, as revenue collection is completely dependent on customers’ response to prices, which responses have been negative over the past five (5) to ten (10) years. 
This is evidenced in the decline of municipal electricity sales, the rise in non-technical losses, and increasing number of customers resorting to alternative energy options with the intention to be independent of municipal supply and grids.

Whilst NERSA has a role to play in regulating, political leaders need to put the right energy policies and institutional arrangements in place to keep a check on escalating price increases.  In this regard SALGA welcomes the President’s stance on the need to unbundle Eskom but there is also a need to address refining the country’s energy policy and transform the entire electricity industry, if we want to achieve low cost, reliable, low-emissions electricity. 

In order to support our economy and attract first world economic activity, it is not only Eskom that needs to succeed as a power company, municipalities must also thrive and be competitive in this business.  For this reason we have called not only for Eskom’s restructuring but for the restructuring of the entire Electricity Supply Industry in order to respond to the current energy transition through technological advances. The country must have a clear plan to build efficient and accountable electricity providers which are cost effective.   Doing nothing and maintaining the status quo is not an option.

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