Energy regulator Nersa’s decision to grant power utility Eskom a near 19% price hike for electricity prices in South Africa is going to send shockwaves across the economy – and consumers and businesses are going to suffer for it.
This is the warning from various sectors of society, including officials in the country’s biggest cities and analysts who note that households are already in the throes of a cost-of-living crisis while businesses struggle to contend with a dire power situation.
Cape Town Mayor Geordin Hill-Lewis branded Eskom’s Nersa-approved 18.65% price hike as ‘unfair and unaffordable’, adding that the city would be looking for ways to move away from Eskom and load shedding over the coming years.
Civil action group Outa, meanwhile, has called the price hike a failure of the government – where those in charge have not done enough to address the country’s energy crisis leading to escalating costs and longer periods of darkness.
Activist group, Rise Mzansi, said that the effects of load shedding, a tariff increase more than three times the rate of inflation, and the rest of South Africa’s crumbling infrastructure presents an emerging picture of a country facing failure and collapse.
According to CEO of Debt Rescue, Neil Roets, the price hike will have a knock-on effect along critical supply chains, which will all compound into a much tougher time for businesses and consumers alike.
Specifically, the price hike comes amid elevated levels of load shedding – currently stage 6, until further notice – adding pressure on consumers, businesses, and every player along critical supply chains in South Africa – from production to retail.
Municipalities will add their own premium on the increase, further worsening the burden. The situation has been described as unsustainable.
“The repercussions of rolling blackouts already pose a serious threat to the lives and livelihoods of people – not least of which pertaining to food security – at a time when over 80% of families are battling to put enough food on the table,” Roets said.
“This looming tariff increase will have severe socio-economic consequences for everyone in the country. There is no clear solution in sight. In fact, Eskom and the government keep repeating the same narrative, alerting the country to a situation that will simply get worse.”
Not only will South Africans be paying more – they will be getting less for it.
Roets said the impact of load-shedding on farming should be a top concern as it is making farming much more expensive. Farmers now have to absorb increased capital outlays for generators and high diesel costs in addition to already high inputs such as fertiliser and shipping costs.
Farming and agriculture groups have noted that power cuts are sowing the seeds of a food crisis – a point reiterated by farmers’ organisation Agri SA, who asked the Treasury for rebates on the petrol and diesel they are using to generate power, warning that extra production costs caused by blackouts could threaten food security in the next 24 months.
“Farmers have spent literally millions of rand on acquiring generators and solar panels. They also spend millions now on diesel. This is a serious challenge for the agricultural industry,” said Christo van der Rheede, an executive director at Agri SA.
These costs are threatening to drive up inflation, Roets warned, compounding the cost of living crisis.
Roets said that load-shedding contributes to rising inflation by disrupting supply chains, increasing the cost of production and impacting manufacturing costs across industries – and that this will be exacerbated by this latest hike in electricity costs.
“The result of unmitigated power outages will be more food shortages and even higher prices,” he said. “This one-two punch will nullify any hope of inflation reducing because of the lowered fuel prices.”
Other repercussions are the possibility of more businesses closing down – especially small businesses that simply don’t have the capital to invest in costly alternative power generators – and the consequences in terms of unemployment when they are forced to let people go.
“There can be no economic stability without a stable power supply,” he said.