Big increase in free Eskom electricity on the cards in South Africa

The government wants to increase the amount of free basic electricity (FBE) available to indigent households from 50 kWh to between 200 and 300 kWh.

This is part of the state’s plan to reduce the impact of elevated administered prices, such as electricity and fuel, on poorer households.

The changes to FBE come alongside plans to reduce the size of electricity tariff increases, with Eskom looking to keep price hikes in line with inflation in the coming years.

Electricity Minister Kgosientsho Ramokgopa explained that the rising cost of electricity has begun to undermine the impact of South Africa’s massive ‘social wage’.

The social wage is what the government spends to support low-income households through access to education, social grants, and free basic services.

This wage accounts for a significant share of the government’s budget, with the National Treasury expecting to spend R1.2 trillion to support low-income households in the current financial year.

Ramokgopa told the SABC that the social wage is being undermined by rising administered prices, which are effectively nullifying grant payments and even access to basic services.

“There is a special category of South Africans that deserves attention, and really, that is the poor who deserve our help,” Ramokgopa said.

“If you think of it, you give them SASSA grants on the one hand and, on the other hand, you are taking it back through higher administered prices.”

This creates the net effect of keeping these South Africans poor and, in many cases, caught up in structural poverty that they cannot break out of.

“That relief, the social wage, is being eroded by the cost of these administered prices, and we need to resolve that,” Ramokgopa said.

One way in which the government plans to do that is through a new electricity pricing policy, which is working its way through Cabinet and is set to be made public later this year.

However, another approach is to increase the amount of FBE indigent households receive, thereby boosting the social wage and offsetting higher electricity prices.

“We think we must increase the amount of FBE from 50 kWh to a number that is anywhere between 200 kWh and 200 kWh,” Ramokgopa said.

“We are not going to burden the state, and we do not want to create a situation where those who can afford electricity are subsidising poorer households.”

Ramokgopa explained that his department believes it can use existing resources more effectively and reallocate funds to increase FBE.

Free electricity is ineffective

South Africa’s FBE programme has been plagued by scandals and relative ineffectiveness over the past two decades, with a fraction of the number expected of households signing up for any benefit.

Eskom CFO Calib Cassim has revealed that only 2 million households receive the benefit annually, out of a total of 10 million that qualify.

Cassim said this is because the mechanisms for delivering the relief to consumers have not worked as the nature of consumption shifts.

FBE, along with other services, are provided by the government at no cost to low-income households, with the amount given expected to generally be sufficient to maintain basic living conditions.

The amount of electricity currently provided, 50 kWh, is enough to provide basic lighting, basic water heating using a kettle, basic ironing, and potentially a small black-and-white TV and radio.

This seems simple enough. However, there are significant hoops through which low-income households have to jump to gain access to FBE.

Households have to be on the lifeline electricity tariff, registered as indigent, or qualify for a pensioner’s rebate on service fees.

Households can’t apply for a pensioner rebate or indigent status if they are in arrears with any municipal accounts.

Ramokgopa previously pointed out that there is no reliable system that makes it possible to extend the full benefit of FBE to households.

“It is not a funding problem. It is an execution problem at the level of municipalities. There is a need for us to find a more reliable way to ensure households receive this benefit,” he said.

The money allocated towards FBE is typically transferred to municipalities, which are then responsible for distributing it to households that qualify.

However, this often does not happen, with the money being used for other purposes. As a result, only a fraction ends up benefiting households that need it.

“Municipalities receive these grants, but the money does not filter through to the right people and is redirected to other areas in the municipality,” Ramokgopa said.

The minister has also noted that you cannot resolve the affordability problem through giving away free electricity alone, with it being a crisis of economic growth as much as service delivery.

“You don’t resolve this crisis by just extending free basic services. You resolve this problem by growing the economy. It is a crisis of economic production,” he said.

Without growth, the state’s finances will come under increasing pressure, and the crisis will become more acute.