Eskom needs more electricity price hikes to survive – De Ruyter

Former Eskom CEO Andre de Ruyter says that the latest Eskom bailout is not sufficient, and the power utility will be back at the National Treasury’s door begging for more money if electricity tariffs don’t match the cost of electricity generation.

Earlier this year, the National Treasury allotted a R254 billion debt-relief package to deal with some of its R400 billion debt.

Despite the support, Eskom’s debt sits at R408.62 billion, 6% more than a year earlier.

In a recent presentation to Parliament’s Public Enterprises Committee, Eskom said it is forecasting a loss of R23.2 billion for the year while posting a R1.62 billion interim profit in the period through 30 September 2023, from a prior R3.8 billion profit a year earlier.

Speaking to Business Day Spotlight, De Ruyter stated that the bailout was essential for Eskom’s recovery, but it alone would not be enough. He mentioned that he would have included one more requirement in the debt relief package: that Eskom obtains cost-reflective tariffs from Nersa – the national energy regulator – which has often granted Eskom less than what it has asked for.

“If we do not get them, Eskom doesn’t get cost-reflective tariffs, then in three to four years’ time, the entity will be back at Treasury’s door with a begging bowl, asking for more, because its costs will be higher than its revenues. You don’t need to be a business wizard to understand that,” De Ruyter said.

How electricity tariffs have changed in South Africa

Energy regulator Nersa granted Eskom an 18.65% increase in tariffs for direct customers, effective April 2023, with another municipal electricity tariff increase of 15.1% taking effect in July 2023.

The price hikes will take the average electricity tariff in South Africa from just over R1.46 per kWh to around R1.84. The average reflects the national average – urban customers who consume power in higher blocks will pay significantly more than this.

In the CPI basket, electricity prices also far outstrip headline inflation, coming in at an average of 14.5% across all provinces.

According to an economic bulletin published by the South African Reserve Bank (SARB) – written by economists Zaakirah Ismail and Christopher Wood – since load shedding started in 2008, electricity has increased by a shocking 450%, drastically outstripping CPI by 352%, with inflation recorded at 98% over the same period.

Despite this, Nersa also granted Eskom a further 12.74% tariff increase effective in April 2024.

According to the economists, this massive increase in tariffs results from the significant impacts on Eskom’s capital expenditure (due to decades of neglect of its fleet) and declining sales as consumers move away from the utility’s services. Other price pressures come from Eskom’s operating costs and municipal pricing.

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