Eskom shooting itself in the foot
South African municipalities have reportedly told energy regulator Nersa that they will not be able to afford Eskom’s requested tariff increases for next year and beyond, echoing warnings of the risk of economic collapse as a result.
Eskom has applied to Nersa for huge price hikes over the next three years, seeking to recover hundreds of billions of rands in lost revenue. It wants a:
- 36.15% increase from 1 April 2025 to 31 March 2026
- 11.81% increase from 1 April 2026 to 31 March 20227 and
- 9.10% increase from 1 April 2027 to 31 March 2028
Speaking to the Sunday Times, multiple municipalities said that, if approved, these tariff hikes will lead to the collapse of many.
They argue that the hikes, if approved, will lead to higher levels of default across more households, compromising municipal budgets. They are also likely to spur social unrest, and push an even greater divide.
Specifically, those who can afford to – affluent households and big corporates – are likely to move away from Eskom and municipal power and opt for alternative energy generation, leaving behind poorer households who already struggle to pay.
This, in turn, will likely end up escalating the debts owed to Eskom, which are already sitting at R78 billion and projected to hit R85 billion by the end of the financial year.
Warnings have already rung out that Eskom’s rising municipal debt could reach R200 billion within a few years – and R1.3 trillion by 2050 – and if this isn’t resolved urgently, Eskom, municipalities, and South Africa’s entire economy could collapse.
This is often referred to as the ‘Eskom death spiral’, where the utility is seen hiking prices to recover from its own financial mismanagement over the decades, ultimately pushing customers away – requiring further price hikes, and exacerbating the cycle.
Minister of Energy and Electricity Kgosientsho Ramokgopa has called the price hikes a “growing crisis” and said the government would look for a way to mitigate them.
In July, he said the rate at which Eskom tariffs and municipal tariffs are increasing is unsustainable, describing it as “an untenable situation”.
“We are getting to a situation where your lower-to middle class – even your public servants – can no longer afford the cost of electricity in this country,” he said.
“So as we speak now, it’s an affordability question; over a period of time, if you don’t address it, it’s a national security problem. Because people are ‘not going to just fold their arms’.”
Higher electricity prices also have inflationary pressure, which impacts the cost of goods and the cost of doing business.
The minister also warned that the price hikes would be a threat to municipal revenue, saying that, as power becomes more unaffordable, households are forced to choose between basic necessities – and if the choice is between “more bread or more power”, the answer is clear.
“More and more people will lose access to electricity. Not because it isn’t available…it is as a result of prohibitive pricing,” Ramokgopa said at the time.
“In numbers, year to date, collectively, municipalities are owing Eskom R78 billion. And I can tell you, a lot of this cannot be recovered. There is no possibility under the sun that we will collect that R78 billion.
“A lot of it is over three months, six months being owed. People are not sitting on this money.
“But this is a problem for Eskom. Eskom needs this money so it can reinvest it back into its own infrastructure. Municipalities have to pay that money – but on objective grounds, they simply do not have the means to.
“If we don’t resolve this problem, our projection is that, at the current rate, at 2050 Eskom will be owed R3.1 trillion. Eskom will collapse,” he said at the time.
Romokgopa has stated that the government will intervene, somehow, before the increases are put in effect.
Loading ...
