Latest Eskom price hike only the tip of the iceberg, experts warn

Experts have warned South Africans to expect a rapid escalation of electricity price increases moving forward due to Eskom’s worsening financial position.

Speaking to SABC News, economist Dawie Roodt said Eskom’s massive price increases over the past few years were implemented because the utility is “in very, very deep trouble financially”.

His comments came after Eskom confirmed that it would implement its annual price increase at the start of April.

The National Energy Regulator of South Africa (Nersa) granted Eskom a 12.74% increase for its direct customers and a 25.64% affordability subsidy.

“I believe that Eskom’s decision to increase electricity prices significantly is completely wrong,” Roodt said.

“Despite years of increasing prices, Eskom’s financial situation remains critical, indicating their strategy is not working”.

Eskom reported a net loss of R23.9 billion in the previous financial year. This is a significant increase from the R11.9 billion loss reported in the previous period.

This marks the company’s seventh consecutive loss, with Eskom facing financial difficulties due to its massive debt, high financing expenses, poor plant performance, and increasing unpaid municipal debt.

To make matters worse, The utility’s chairman, Mteto Nyati, also recently said he expects another R20 billion loss for this financial year.

Nyati’s expectation is in line with guidance given by the company in October last year, where it said it expected a R23.2 billion loss for the financial year to the end of March 2024.

Roodt warned that the current situation is not sustainable, and Eskom will continue to raise electricity prices as its financial stability continues to decline.

He added that we are likely to experience more electricity price increases as long as Eskom is managed in the same way and as long as it has this colossal outstanding debt and continues to incur losses.

Survival

Despite the numerous calls against electricity price hikes, former Eskom CEO Andre de Ruyter said that the power utility needs to increase its price hikes to survive.

De Ruyter explained that the latest Eskom bailout is insufficient, 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.

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

De Ruyter said Eskom needs cost-reflective tariffs from Nersa, the national energy regulator, to sustain its operations.

However, Nersa has often granted Eskom less than it has asked for. If cost-reflective tariffs are not obtained, Eskom will face financial difficulties in three to four years and will be forced to seek additional funding from the Treasury.

“You don’t need to be a business wizard to understand that Eskom requires cost-reflective tariffs to continue operating,” he said.

An economic bulletin published by the South African Reserve Bank (SARB) at the end of last year, authored by economists Zaakirah Ismail and Christopher Wood, revealed that electricity prices have surged by a whopping 450% since load shedding began in 2008.

This increase is much higher than the Consumer Price Index (CPI), which rose by 98% during the same period. The difference between the two rates is quite significant, with electricity prices outpacing inflation by 352%.

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