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Eskom's plan a disaster  Comments
October 14, 2009

By Lyse Comins


  • Can you afford to pay Eskom's 45% tariff increase? - click here to vote

    Eskom's latest proposal to increase electricity prices by 45 percent annually for the next three years will have an inflationary effect on the economy and lead to a series of interest rate hikes that could cripple many households and businesses financially.

    This was the reaction of economists and consumer groups to an application made by Eskom to the National Energy Regulator of South Africa (Nersa) yesterday in which it proposed to increase electricity tariffs.

    This was according to the parastatal's multi-year price determination document, which was submitted to the regulator in Johannesburg yesterday. If approved, the increase will apply from April 1 for directly supplied customers and from July 1 for municipality supplied consumers.

    The hikes were likely to help push inflation above the six percent Reserve Bank target mark and interest rates would start rising.

    Ina Wilken, vice-chairwoman of the SA National Consumer Union, lambasted the proposal, saying it had come at the worst time for consumers.

    She said the government should have stood surety for Eskom's expansion programme, which should have been funded by an international loan.

    "It's nice for everybody to climb on a podium and tell us what they have got to do, but the problem is why didn't they do it a year ago when things went bad and we had load shedding?

    "I am not very impressed because they are saying if you don't pay we will not be able to give you electricity. We ask the government why must the consumers now stand in and pay extra for the next three years? And we say to consumers they must start using less electricity. Get yourselves a gas stove and get yourself another form of energy. The cost of everything we use is going to increase and we are going to have an inflation figure that is right through the roof and then they will start increasing the interest rates again telling consumers they are spending so much. They are blaming consumers for being so over indebted, but why are they so over indebted? It's because they have to pay so much,"
    Wilken said.

    National Consumer Forum Chairman Thami Bolani said: "We are horrified, to be honest, because these increases are going to be unaffordable for many consumers. Can you just imagine for a family of four on a salary of R10 000 a month with the electricity prices more than doubling in less than three years? A lot of families right now simply can't cope and if you are going to increase electricity, people are going to be paying more for food and transport. It's just not good for the economy," Bolani said.

    Rates

    Bolani said his organisation was joining the UK-based International Consumer Research Trust and had asked it to probe whether Eskom's electricity tariffs, as the parastatal has claimed, are in fact cheaper than in other countries.

    "They will be coming to help us find out exactly what is happening with electricity and maybe the same thing will happen that is happening with cellphone connection rates. We need to do something scientific to challenge these guys," Bolani said.

    Nersa had not responded to questions at the time of going to print.


    Efficient Group economist Fred Mitchell said: "We knew that Eskom was under pressure to renew its capital stock and the price hikes were really necessary to keep the lights on in South Africa.

    "Even though it's no surprise, it is going to put inflationary pressure on our economy. It will drive up interest rates.

    "It will add pressure to being competitive within the international market, so it does not bode well for the export industry especially manufacturing and mining and obviously households will also feel the pain. As consumers you have to pay your bill or turn to alternative energy sources."

    Noelanie King-Conradie of NKC Independent Economists said rising administrative prices, among them school fees, property rates, electricity and medical aid, were the main drivers of inflation.

    "In the current economic environment consumers have been hit very hard.
    We are already paying 50 percent more than we were used to and that takes away from disposable income. Three-quarters of our economic growth is made up of consumer spending.

    "It has a ripple effect into quite a few areas, so it is definitely sad news for the consumer on any front (regardless of) what the increase is because it will be anything more than 20 percent and that is significant," King-Conradie said.

    Eskom spokesman Andrew Etzinger defended the proposal, saying demand for electricity was projected to rise between 2.6 and 2.9 percent a year and to meet this demand its 40 000 megawatt output had to be doubled before 2020.

    Etzinger said demand for electricity had risen 5 percent a year over the past five years although it had dropped by 2 percent last year because of the recession.

    "There is an understandable level of emotion around the increases, but as long as the demand for electricity increases in South Africa we have to build new plants. We are spending R385 billion over the next five years," Etzinger said.

    Etzinger said after three years "increases should settle down to roughly the rates of inflation to bring the price of electricity in line with the cost of producing electricity.

    "Prices will be brought up to international prices and we would also find other participants starting to invest in power plants."

    Etzinger urged consumers to download its proposal off its website and to submit comments.

    Nersa will hold public consultations before it makes a decision on the proposed increases.





  • To watch a video on how electricity costs are set to skyrocket - click here

  • To view the presentation that Eskom made to the media - click here

  • To view the full application that Eskom made to the state energy regulator - click here

  • Showing page 1 of 3 comment pages, 23 total comments
    16 Weeks ago Furious wrote :
    Zimbabwe here we come!!!! They are ( once again ) blaming it on , guess what...the legacy of apartheid...YAWN...... you guys have had 15 years to sort that one out. Why do we have to pay for Eskoms capital growth projects....the government should be paying for that...and in any case, no matter who pays, it will be badly managed and stolen before anything of value happens. This is so bad for the economy....R 2000-00 a month for electricity means R 2000-00 less that can be spent so that will affect businesses and will result in runaway inflation ......the cost of all goods and services is going to soar. Also who is going to determine who the " poor " are...if this happens we will ALL BE POOR!!!!!!
    16 Weeks ago Viva Helen wrote :
    Another fine stuff up as a result of the ANC policies. Besides lining their own pockets is there nothing that they do which works. Why is it always a result of apartheid ? It is time they stood up and be counted, It will be interesting to hear what the Umfaan Julious has to say about these increses.
    16 Weeks ago Dave wrote :
    This is the FINAL straw.PEOPLE wake up !!! Go do some reseach on FREE energy ,you will find that using WIND ,Magneticmotors ,Ocean ,Sun(solar) are all out their ,WE just need to start using them. LET see what ESKOM will do then .... REMEMBER this is all ABOUT a monopoly ... FREE ENERGY FOR THE FUTURE
    16 Weeks ago Anonymous wrote :
    We need to end Eskom's monopoly - these proposed increases are out of line... most people will not be able to afford them.... but it's also made worse when you read about the bonuses being paid to Eskom management. Government must step in and put an end to this greed, because if i (as a middle class citizen) am having trouble with these increases, what about the majority of the population? How will they be able to afford it?
    16 Weeks ago The SCEPTIC wrote :
    it wouldn't surprise me if on closer examination(if one were allowed that is) we find that the companies partially owned by ANC bigwigs get there electricity at a fraction the rest of the country is paying. A real nice kickback to friends of the ANC and screw the rest. That is the rest of us will co-fund their companies/buddies/family members electricity so they can make a lot more profit. Let Eskom show totally transparency to the media if it wants us to buy into this scheme. I want the media to give us the public assurances that we are not being fleeced in what is really a complex kick back scheme!!
    16 Weeks ago Anonymous wrote :
    Two problem with this, first being bad planning on Eskoms part, they were already of this problem on the horizon in 1997. Second one is they are giving more free electricity to the poor in order for the ANC to win votes, that at the expense of the honest citizen who pays his taxes and electricity bills.
    16 Weeks ago BumperCrop wrote :
    Why do power stations need to be payed off in 3 years or even 5? It will take this long to build them (or knowing eskom, think about building them.) These projects should be paid off over 20 or 30 years not expect us to pay them upfront. If the government had not spent billions on silly ships, planes and egotist toys they would have the money to fund this. It is unacceptable, heads should roll and eskom ceo should take a massive cut in salary, they truly have no clue living the rich life where these increases make little difference. And while government looks at cellphone rates when are the banks going to lower their charges? The rip-off society must stop.
    16 Weeks ago Anonymous wrote :
    Our government is pathetic and the ordinary tax paying citizen suffers. If government officials can spend in excess of R300 000 for a party or 5 star accomodation then I am sure they can stop this madness by allocating some funds so that Eskom can do whatever they need to do to provide a good service.Is there no one out there that can also provide electricty using more effective, less expensive and environment friendly methods...????HELP
    16 Weeks ago Anonymous wrote :
    I wonder how much of this increase will go to exorbitant bonuses? I have friends working for Eskom who boasted as to the size of their bonuses this year - in some instances up to 40% of annual salary!!! Not to mention the fact that Eskom EXCO members also received huge bonuses, albeit hidden in convoluted "stock option" schemes (refer Eskom annual report 2009)
    16 Weeks ago Anonymous wrote :
    WE NEED MORE COMPETITION IN THIS COUNTRY FOR MANY THINGS, ESKOM BEING ONE OF THEM, TELKOM BEING ANOTHER ETC ETC. THEN WE WILL SEE THE DIFFERENCE ON HOW COMPANIES ARE RUN. THEN WE; THE CONSUMER WILL BE TREATED THE WAY WE DESERVE TO BE.. LOOK OVERSEA'S SO THEY HAVE THESE PROBLEMS...? NO ! HOW COME IN YEARS GONE BY WE DID NOT HAVE THESE PROBLEM'S? SOMEONE SOMEWHERE IS MAKING MUCK UP'S & WE ARE PAYING FOR THEM. FRANKIE GARDNER K.Z.N.
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