By Hennie Pretorius, journalist, Justmoney
Last week the National Energy Regulator of South Africa (Nersa) gave Eskom permission to raise electricity prices by 8% in order to recover R7.8 billion of unforeseen expenses.
Consumers and businesses are set to suffer further thanks to this increase along with rising prices in fuel and food. According to reports companies are adopting drastic measures to keep their businesses going.
Eskom had applied for an increase to cover R18.4bn of excessive costs incurred during the 2010 to 2013 ‘control’ period, but this was not granted. The approved increase was welcomed by Eskom nevertheless:
"What is positive at this stage is that a robust process was followed in conducting the RCA [Regulatory Clearing Account] process, which is an illustration of the application of the regulatory mechanism that supports the implementation of the Electricity Regulation Act,” Eskom chief executive Collin Matjila said.
According to Eskom, determining the price of electricity is based on future ''projections'' and ''assumptions'' of electricity usage.
Proposed increases based on Eskom’s audited financial statements are submitted to Nersa. The RCA application is reviewed by Nersa and a ‘suitable’ tariff structure is then decided on by the regulator, either increasing or decreasing electricity prices, in order to ensure fairness to both Eskom and consumers.
Increase of 13% more likely
The price increase will be implemented 1 April 2015. Although an increase of 8% has been approved, the final approved tariffs have yet to be finalised and released:
“The regulators’ decision on the RCA will be implemented in 2015/16 financial year. The decision means that there will be a tariff adjustment next year. At this stage we are not able to indicate what percentage increase this will be as this has not yet been determined,” said Nersa spokesperson Charles Hlebela.
Executive director of investment bank Nomura, Peter Atard Montalto said this is the first step before tariff increases are authorised by Nersa and consumers can expect an additional 2-5% increase:
“It means tariffs will be increasing by between 2-5% on top of the existing 8% tariff increase already approved for next year,” said Montalto.
How this affects inflation
The South African Reserve Bank (SARB) monitors price increases closely as inflation needs to be adjusted accordingly:
“Assuming a 5% extra increase (so 13% overall increase), an additional 0.2% would be added onto headline CPI [consumer price index] from July next year, rising probably to around 0.3-0.4% over a year including second round effects.
“Larger tariff increases are not in the SARB baseline but are in their risk skews on inflation. As such for us it plays into existing SARB hawkishness,’’ concluded Montalto.
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