Electricity prices in South Africa are being challenged – what you should know

The Nelson Mandela Bay Business Chamber is legally challenging the National Energy Regulator’s (Nersa) municipal tariff methodology which is used to determine and approve electricity tariffs charged by municipalities.

The business chamber is arguing that the tariffs are both high and uncompetitive, directly impacting the sustainability of businesses.

“It is our view that the electricity regulation requires tariffs to be fair and reflective of efficient costs, including a reasonable return to the distributor. Nersa’s current methodology for municipal tariff determination allows the municipalities to deviate from that principle, thus burdening the productive economy and further impacting upon unemployment levels.”

Specifically, the chamber said that electricity tariffs charged to industry in municipalities are much higher than Eskom’s direct customer charges.

“Due to municipalities becoming increasingly dysfunctional and inefficient, electricity losses through theft and meter tampering have become out of control and render the municipal electricity distribution function uneconomical. We have reasons to believe that some 40% of the Nelson Mandela Bay Municipality’s electricity meters are tampered with.

“The Nelson Mandela Bay Municipality is budgeting for electricity losses for the current financial year to be above 25%, putting the financial value of these losses above the R1.2 billion mark. Furthermore, the municipal electricity distribution will lose close to R800 Million for the 2022/23 financial year, mainly as a result of the excessive and uncontrolled losses.”

Eskom says yes 

The business chamber said its court case will attempt to set aside Nersa’s municipal tariff determination methodology while representing an important step in preventing municipal inefficiencies from being incentivised through high tariffs. It added that Eskom supports its legal challenge and will also join the hearing.

“The reason for this is that this situation within municipalities is equally untenable for Eskom, and as of the end of September 2021, municipalities owed Eskom R40.9 billion – an increase of R8 Billion from the previous year.

“Our end goal is to ensure that business and industry which operates in the municipalities remain competitive and are not burdened by municipal dysfunctionality through the charging of excessive electricity tariffs.

“We also need to see enforcement of compliance, which in turn should exert pressure on municipalities and state-owned enterprises to deliver efficient services to the communities and to business.”

The business chamber believes that the municipality’s institutional failures are of such a nature that they are unable to run an efficient electricity distribution function.

This is reflected in high tariffs to compensate for their excessive losses, and also through the increasing and recurring power interruptions which are occurring as a result of their infrastructure issues, which in turn affects the viability of businesses in Nelson Mandela Bay, it said.

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Electricity prices in South Africa are being challenged – what you should know