SOUTH AFRICA: State owned power utility gets price hike, prompts union strike threat

Record ID: 455678

  • Title: SOUTH AFRICA: State owned power utility gets price hike, prompts union strike threat
  • Date: 26th February 2010
  • Summary: (SOUNDBITE) (English) PATRICK CRAVEN, SPOKESPERSON, CONGRESS OF SOUTH AFRICAN TRADE UNIONS (COSATU), SAYING "COSATU is very angry at these increases although they are less than the 35 percent a year that Eskom wanted they are still very, very steep and 25 percent is more than four times the current rate of inflation and it will have devastating effects on all sorts of different people. First of all the individual consumers, particularly the poorest ones, will have a huge increase in one of their biggest monthly expenditures. Inflation will rise, which could jeopardise our chances of recovering from the economic recession, and many companies are going to be struggling to meet the extra cost of their electricity bill and may well start retrenching workers or even have to close down."
  • Embargoed: 13th March 2010 12:00
  • Keywords:
  • Location: South Africa
  • Country: South Africa
  • Topics: Economic News,Energy
  • Reuters ID: LVA2WQ1VFWLXGJP0OJXTMY3QLTPO
  • Story Text: In an attempt to tackle a chronic power shortage, South Africa's state owned power firm Eskom will be allowed to hike electricity prices by a nominal 24.8 percent this year.
    The increase for the 2010/11 fiscal year fell short of Eskom's request for a 35 percent hike, but critics say the hikes will still have a big impact on investment and job creation in an economy recovering from its first recession in nearly two decades. Eskom was also granted nominal increases of 25.8 percent and 25.9 percent respectively for the following two financial years.
    Cash-strapped Eskom wanted to hike electricity prices by 35 percent a year for three years, to help it raise 461 billion rand (59.27 billion) to build more plants and avoid the blackouts that crippled the vital mining industry in 2008. South Africa's electricity is among the cheapest in the world, partly due to a government policy of underpricing power to attract industry in the country. Eskom's average cost of three U.S. cents per kilowatt-hour for the past financial year, compares with 8-9 U.S. cents for OECD countries.
    The utility, which provides 95 percent of the country's power, has suffered due to a lack of investment in new capacity and ageing power stations as demand soared.
    Thembani Bukula, Chairperson of the electricity subcommittee of the National Energy Regulator (NERSA) told reporters on Wednesday (February 24) that the price hike was needed to build electricity infrastructure so that an extra 10,000 megawatts could be provided.
    "We looked at what Eskom said they want and we gave them what they needed by extracting all of the efficiencies we could extract from the way they procure coal, from the way they remunerate their manpower and from the way they contract in other areas of their business and based on that, we had the starting point which says that this country needs to grow and it needs 10,000 megawatts additional into the system. So between the 10,000 megawatts into the system, the reduction of all the costs, we then could come to the conclusion that the tariff increases that could fund that because of the shortfall both in the amount that the shareholder is given and the amount that Eskom can borrow because of their ability and their balance sheet is what the 25 percent would ensure is also met," Bukula said Bukula also said that the country was looking into alternative sources of electricity to meet the challenges of the global environmental crisis. South Africa plans to build multiple nuclear plants to plug the country's power deficit and reduce its carbon footprint. Nuclear plants will be used to replace ageing coal-fired power plants with some 7,000 Megawatts to be built between 2020 and 2030.
    "Those inputs about moving towards renewable energy or environmentally friendly sources of energy are bign considered. One of the things that's being considered but it is environmentally friendly is the nuclear option. In the price publication that we've just approved, about two billion rand in the first year is being funds allocated to renewable energies, IPPs and coal generators," Bukula said.
    Despite the NERSA's assertions, the announcement was met with strong opposition by the country's trade union federation COSATU, which says that at more than four times the inflation rate, the tariff hike is unacceptable. COSATU, which has nearly two million members, threatened a national strike against the increase.
    "COSATU is very angry at these increases although they are less than the 35 percent a year that Eskom wanted they are still very, very steep and 25 percent is more than four times the current rate of inflation and it will have devastating effects on all sorts of different people. First of all the individual consumers, particularly the poorest ones, will have a huge increase in one of their biggest monthly expenditures. Inflation will rise, which could jeopardise our chances of recovering from the economic recession, and many companies are going to be struggling to meet the extra cost of their electricity bill and may well start retrenching workers or even have to close down," said Patrick Craven, COSATU's spokesperson.
    Some analysts have indicated that the price increase, which was lower than Eskom had requested, would not fuel inflation as much as had been feared. The central bank has said significant power price rises were the main threat to its inflation outlook, and it had already factored in a 25 percent tariff increase into its forecast.
    But for millions of South Africans like Elizabeth Mqwayi, living in impoverished neighbourhoods like this one across the country, the price hike will be hard. The 58-year-old grandmother says she simply will not be able to afford the new power prices this year.
    "Once the electricity tariff has gone up I won't be able to afford electricity. I have grown-up children that stay with me but we are all unemployed," said Mqwayi.
    NERSA argues that the new tariff structure will protect families like Mqwayi's because it charges the poor smaller prices. Those households that spend less than 50 kilowatts monthly receive a 10.59 percent reduction in the tariff. Those that consume between 51 kilowatts and 350 kilowatts monthly, a reduction of 5.2 percent will be observed.
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