Cnr Charles & Fichardt Streets P.O. Box 4447 Kaizer Sebothelo Building Bloemfontein 9300 Date: 21 January 2013 SANCO FREE STATE PROVINCE PRESENTATION ON ESKOM PROPOSED TARIFFS INCREASE VENUE: MANGAUNG METROPOLITAN MUNICIPALITY BLOEMFONTEIN
SANCO DUE TO FUNDAMENTAL REASONS THAT CAN NOT GO WITHOUT BEING UNNOTICED REJECT THE ESKOM S PROPOSED MULTI YEAR TARIFF INCREASE BASES ON THE FOLLOWING FACTORS! SANCO fully understand that South Africa needs a reliable and sustainable electricity supply to build the economy and promote social development as a country but we do not see the Eskom third Multi-year price determination submitted to NERSA as a solution to that, but as a method that is determined to oppress the communities considering the state of unemployment we are in. Whilst we recognise that the poorest members of our communities receive some form of subsidy on their electricity. We are concerned that the numbers of the beneficiaries will increase beyond our comprehension and this will put pressure on those that are on the borderlines of affordability. Since 2008 the cost of 1unit of electricity has jumped from 19,4c/kWh to 61ckWh today and, if Eskom gets its way, this will increase it to 128c/kWh by the end of the five-year period. These increases are bewildering not only to SANCO but to many South Africans. The direct effect of this electricity tariff increase in the past was not immediately felt, given that electricity only had a weighting of 1.87% in the consumer price index (CPI) basket. But with the introduction of on the CPI at beginning of this year, the effect of the inflation will be greater.
Electricity weight in the CPI basket is likely to go up to 4%, meaning that any price hike in the order of what Eskom is proposing would add inflationary pressure directly and indirectly. There will be negative consequences. The indirect effects of tariff increases are likely to filter through to other administered prices, including transport and health costs, thus adding pressure on businesses and households. South African households are already over indebted. Official figures show household debt to disposable income is at 76.3%. This increase will drive many small businesses and industries under If the government is calling on employees to ask for moderate salary increases, even organisations like Eskom should adjust their tariffs in a reasonable way taking into consideration the challenges facing the consumers and the economy. the reality is that, eskom s pricing structure is starting to dictate industrial policy The government s policy action plan hinges on job creation through a revival of manufacturing. But Eskom s skyrocketing increases mean that 30% of the industrial tariff could be subsidy contributions. Energy Intensive User industry will be subsidising people who don t have jobs up to where it reaches a tipping point. Industry will shut down. Every job lost here is a job gained in China [where industry is moving to]. But the detail in Eskom s application to Nersa admits to another reality. The 1 trillion the power utility aims to raise with the new increases over the next five years is a very short term solution. The increase won t do anything to address or plan for the country s longer-term energy needs One of the key Millennium Developmement goals of the United Nations adopted By South Africa is eradication of poverty and hunger, so this increases will not be in line with that since it will further increase hunger instead
of reducing it considering that our unemployment south hovers at around 26% according to Statistics South Africa. We further believe that Eskom like many state owned enterprises have a responsibility to provide affordable, efficient and quality universal services to the citizens of this country. 90% of our electricity is generated from coal fired power stations, this impact on the pricing of the electricity as the price of coal as a commodity is determined by market forces. The understanding is that if Eskom tariffs increase was to be approved, this will have a negative implication on the household accessories of which will push the food markets to increase their prices and this will affect our poor communities very badly. We further need to elaborate on the implications that will hugely affect the poor residence and households if these increases were to be implemented:
1. This tells us that Municipalities will be left with no option but to add their own percentage on the ESKOM increases. We need to note that there is no regulatory framework for the municipalities in such. According to the Energy Intensive Users Group of Southern Africa, the figure was 692 percent in the City of Tswane in the past financial year and 548 percent in Nelson Mandela Bay Municipality. To this extent the ESKOM tariff increase proposals must not be isolated from the exorbitant increases by Municipalities. The fact that 60% of revenue for Municipalities is derived for electricity tariffs requires discussions beyond NERSA. 2. ESKOM tariffs increases should not be viewed in isolation from the other essential services like water. For instance the Rand Water intends to increase its tariffs by 9.8%. The Municipalities are expected to put their own mark up on these increase. 3. The Large energy consumers have already raised a concern about ESKOM planned increases. They have further indicated that their profit margins have fallen down dramatically since the 25% increase of 2011. This has very serious implications for both economic growth and unemployment in this country. 4. ESKOM must explain how they arrived at this increment since the household payments and residential billing system improved and increased over the past 3 years. They must reflect on their collection strategy
to demonstrate that they don t have billions of rand lying in the hands of power users. Are we being penalised for their inefficiencies? 5. ESKOM is a state owned enterprise established to provide affordable universal service to the citizens of this country. The fact that they want to use the increase to improve their credit rating is worrying factor. We therefore, not reject the whole tariff increase. SANCO therefore accept the infrastructure related increase and reject the operational increase. We support the expansion of capacity. But operationally they misuse resources in their so called Fun Days annually where they spent above R30 million for personnel on holiday. We cannot fund that through the hike. We therefore, wish to indicate that objects to the 16% annual increase over a period of 5 years, we would propose 6.7% increase to households as we believe that is what can be used for the upgrading of the infrastructure.