Eskom's request for an additional electricity tariff increase on Tuesday got unexpected support from the International Monetary Fund (IMF)‚ which said the hike was necessary to make the utility financially sustainable.
The global lender warned that power outages were the biggest obstacle to SA’s economic growth and suggested strict conditions for the tariff hike.
“Higher electricity tariffs and the envisaged government support are necessary to make Eskom financially sustainable‚ but should be complemented by cost containment‚ including through improved procurement‚ efficiency enhancements and governance improvements to minimise the impact on consumers and business costs‚” the IMF said.
The National Energy Regulator of SA (Nersa) on Tuesday held public hearings into whether or not Eskom should be granted an additional 9.6% increase in tariffs next month after a 12.7% hike in April.
Acting Eskom chief executive Brian Molefe said the tariff was needed to pay for diesel used in some generators and to buy electricity from independent power producers.
“I am afraid that during this time of crisis some of our demand-side management will have the effect of slowing down growth‚” Molefe said.
The request has been widely opposed. Higher tariffs will stoke inflation‚ which means the likelihood of an interest rate hike sooner than expected.
The Reserve Bank this week again warned that steep electricity tariff increases could see inflation remain outside the 3%-6% target band for longer than currently forecast.
The IMF also supported the participation of independent power producers.
Rating agencies Moody’s and S&P have downgraded Eskom to speculative grade‚ or junk status.
Treasury said measures had been taken to address the electricity constraints “by investing in critical infrastructure‚ stepping up maintenance to ensure reliability of supply‚ renewing existing co-generation agreements and entering into new ones with private firms‚ and expediting the completion of new power stations”.
The IMF expects economic growth to be constrained by power outages this year‚ and rise to about 2.8% over the medium term when energy becomes more available.
SA’s economic growth continued to under-perform its peers‚ the IMF said‚ adding that its expectation for a “muted” growth of 2% this year was due to a deepening of the electricity crisis and an expectation of fewer days lost to strikes.
Nhlanhla Ngidi‚ sector specialist in energy and electricity at the South African Local Government Agency‚ said any further rise would make the tariff increase five times higher than inflation.
Peter Turner‚ senior vice-president of technical services at Sibanye Gold‚ which employs 45000 people, said that Eskom’s tariffs had rocketed 156% in five years and were significantly affecting Sibanye’s cost base.
Along with the proposed environmental levy and carbon tax 8200 jobs were at risk between now and 2017‚ affecting 630000 ounces of gold‚ which would amount to R8.2-billion in lost revenue for the company.
Jacobus Zaayman‚ chairman of the Ferro-Alloys Producers’ Association, said if the tariff increases were allowed it would be a short-term solution that would have “devastating long-term consequences”.
“Electricity prices in winter are so high that some of our members prefer to close down operations to do maintenance‚” he said. — BDLive
Eskom hike has backing of IMF
The global lender warned that power outages were the biggest obstacle to SA’s economic growth and suggested strict conditions for the tariff hike.
“Higher electricity tariffs and the envisaged government support are necessary to make Eskom financially sustainable‚ but should be complemented by cost containment‚ including through improved procurement‚ efficiency enhancements and governance improvements to minimise the impact on consumers and business costs‚” the IMF said.
The National Energy Regulator of SA (Nersa) on Tuesday held public hearings into whether or not Eskom should be granted an additional 9.6% increase in tariffs next month after a 12.7% hike in April.
Acting Eskom chief executive Brian Molefe said the tariff was needed to pay for diesel used in some generators and to buy electricity from independent power producers.
“I am afraid that during this time of crisis some of our demand-side management will have the effect of slowing down growth‚” Molefe said.
The request has been widely opposed. Higher tariffs will stoke inflation‚ which means the likelihood of an interest rate hike sooner than expected.
The Reserve Bank this week again warned that steep electricity tariff increases could see inflation remain outside the 3%-6% target band for longer than currently forecast.
The IMF also supported the participation of independent power producers.
Rating agencies Moody’s and S&P have downgraded Eskom to speculative grade‚ or junk status.
Treasury said measures had been taken to address the electricity constraints “by investing in critical infrastructure‚ stepping up maintenance to ensure reliability of supply‚ renewing existing co-generation agreements and entering into new ones with private firms‚ and expediting the completion of new power stations”.
The IMF expects economic growth to be constrained by power outages this year‚ and rise to about 2.8% over the medium term when energy becomes more available.
SA’s economic growth continued to under-perform its peers‚ the IMF said‚ adding that its expectation for a “muted” growth of 2% this year was due to a deepening of the electricity crisis and an expectation of fewer days lost to strikes.
Nhlanhla Ngidi‚ sector specialist in energy and electricity at the South African Local Government Agency‚ said any further rise would make the tariff increase five times higher than inflation.
Peter Turner‚ senior vice-president of technical services at Sibanye Gold‚ which employs 45000 people, said that Eskom’s tariffs had rocketed 156% in five years and were significantly affecting Sibanye’s cost base.
Along with the proposed environmental levy and carbon tax 8200 jobs were at risk between now and 2017‚ affecting 630000 ounces of gold‚ which would amount to R8.2-billion in lost revenue for the company.
Jacobus Zaayman‚ chairman of the Ferro-Alloys Producers’ Association, said if the tariff increases were allowed it would be a short-term solution that would have “devastating long-term consequences”.
“Electricity prices in winter are so high that some of our members prefer to close down operations to do maintenance‚” he said. — BDLive
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