Eskom’s price hike warning for South Africa
Power utility Eskom says that South Africans will need to cough up more for electricity if the country ever wants to return to ‘normal’ tariff hikes, warning that more pain will lie ahead if energy regulator Nersa doesn’t allow it to happen.
In Eskom’s latest multi-year price determination applications (MYPD6), the group is seeking massive electricity price hikes over the next three years:
- 36.15% from 1 April 2025 to 31 March 2026
- 11.81% from 1 April 2026 to 31 March 2027 and
- 9.10% from 1 April 2027 to 31 March 2028
In justifying the hikes, Eskom said that it is important for South Africa’s electricity pricing to be cost-reflective so that future price hikes can come without the major shocks that consumers have seen in the past few years.
However, it said that energy regulator Nersa has consistently refused to allow Eskom to make pricing cost-reflective, exacerbating the group’s financial difficulties and effectively kicking the can further down the road.
“When Eskom makes a revenue application to Nersa, all it expects from a revenue determination is for efficient costs to be recovered through a tariff application. This is motivated in detail when a revenue application is made,” it said.
“The criteria applied are strictly guided by the relevant legislation and Nersa rules. However, Nersa has not allowed Eskom to recover its efficient costs at a fair return for many years.
“The efficient cost for a utility can be independently determined using the particular South African circumstances. As judged recently, Nersa has not been fulfilling its legislative mandate in this regard.”
In essence, Nersa has not been allowing Eskom to recover its efficient costs and a fair return, the group said.
By Nersa not allowing Eskom to recover the revenue it applies for, the group experiences a shortfall that has to be funded by debt and increasing government bailouts. This is further exacerbated by municipal debt, which also needs to be covered.
By FY 2023, Eskom’s debt securities and borrowings hit R424 billion, with government bailouts hitting a cumulative R242 billion.
The group’s revenue shortfall hit a cumulative R535 billion, while municipal debt was at R59 billion.
Problem could get much worse
Eskom warned that the problem could get much worse if it is kept back from hiking tariffs to a cost-reflective state.
Even with the Eskom Debt Relief Act—which will see the South African government take over R250 billion of Eskom’s debt—the group says this will “come to nought” if Nersa doesn’t allow the price hikes to go through.
“(The government) package addresses the decades of shortfalls in revenue determinations and requires Nersa determinations that allow for a further narrowing of the gap between towards cost reflectivity. The debt support would come to nought if the gap to cost reflectivity is not narrowed,” Eskom said.
Eskom’s MYPD6 application lays out the impact of Nersa’s previous tariff decisions—some of which have been successfully fought (and won) in court.
These relate mainly to the Regulatory Clearing Account (RCA) in Nersa’s methodology, which allows Eskom to recover lost revenue in future tariff hikes (or, theoretically, to give back excessive revenue through future tariff cuts, which is yet to happen).
“The High Court has found that Nersa has not correctly implemented its methodology, resulting in a R62 billion shortfall in revenue recovered by Eskom over a seven-year period. For the amounts that Nersa has determined, approximately R20 billion is lost due to the time value of money, where recovery of efficient revenue is delayed by 4 to 6 years,” Eskom said.
The group also flagged the Nersa MYPD4 decision, where R69 billion was incorrectly deducted from the return on assets in FY2020 to 2022.
This amount is now being recovered from FY2022, 2024 – 2027. However, Eskom pointed out that the time value of money lost is approximately R36 billion.
Wider problem
While the reality of Eskom’s balance sheet cannot be escaped, neither can the reality for South Africans.
Economists, analysts, experts, and even the government have acknowledged that consumers cannot suffer the blow of massive electricity price hikes, calling it a looming crisis and even a threat to national security.
Minister of Electricity and Energy Kgosientsho Ramokgopa has called it a “complex issue” that needs urgent government intervention.
Economists, meanwhile, have flagged the wider risks to inflation—while also pointing to a possible death knell for Eskom, which would be encouraging customers to move away from is services.
The Bureau for Economic Research said that, while it remains to be seen what Nersa will grant the power utility—unlikely to be the full 36%—Eskom’s MYPD6 applications presents a real upside risk to inflation.
“It (would) not only directly push up the electricity component of CPI but also trickle to other prices as producers recoup costs.
“Of course, higher electricity costs continue to support the investment case for switching to renewable energy,” it said.
Eskom chairman Mteto Nyati has denied a massive move away from Eskom, saying that it is a misconception that customers are fleeing, adding that most businesses continue to rely on the utility for power supply.
Regarding the economic impact, Eskom also handwaved this argument away, saying that higher electricity prices are actually beneficial to the economy.
Citing a 2003 report commissioned by the National Treasury, Eskom said that continued sub-economic
pricing—prices below long-run marginal costs—in the industry run the risk of increasing real costs in the economy by reducing allocative efficiency.
“Furthermore, subeconomic energy prices benefit energy and capital-intensive growth and place labour and skills-intensive development paths at a disadvantage.
“Proper economic pricing of power will reverse skewed incentives in the long-term and support South Africa’s primary economic aim, which is to establish labour-absorbing development paths,” it said, quoting the report.
Read: Eskom tables massive 2025 electricity price hike for South Africa
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