Big electricity price increases because Eskom paid R238,000 for a mop

Eskom wants to increase electricity prices by 36.15% to cover its rising costs. However, the costs are so high because of mismanagement, corruption, and a bloated workforce.

On 23 September 2024, the National Energy Regulator of South Africa (Nersa) published Eskom’s multi-year price determination (MYPD).

Eskom is applying for total revenues of R446 billion for FY2026, R495 billion for FY2027, and R537 billion for FY2028.

The proposed average price increases for Eskom direct customers are 36.15% for the financial year from 1 April 2025 to 31 March 2026.

The power utility wants to increase prices by 11.81% from 1 April 2026 to 31 March 2027 and 9.10% from 1 April 2027 to 31 March 2028.

“This application allows for an improvement in the financial sustainability of Eskom through the migration to cost-reflective prices,” Eskom said.

Many people slated Eskom’s planned price increases, including respected energy analyst and EE Business Intelligence founder, Chris Yelland.

“After price increases of two to five the inflation rate for many years, how can Eskom apply for a 35% price increase seven times the inflation rate on 1 Apr 2025?” he asked.

“Then on top of that massive increase, a further increase two to three times the inflation rate on 1 Apr 2026, and again on 1 Apr 2027.”

It shows that the concept of cost-reflective prices is misguided when working with a monopoly like Eskom. This model’s premise is false.

In his book, ‘Basic Economics’, renowned economist Thomas Sowell highlights the variable nature of the cost of producing goods and services.

Enterprises in the former Soviet Union, for example, always asked for more than they needed from the government to produce products.

“They take everything they can get, regardless of how much they need, and they don’t worry about economising on materials,” he explained.

“After all, nobody at the top knows exactly what the real requirements are, so squandering made sense from the standpoint of the manager of a Soviet enterprise.”

Wasting money included paying too much for products and services, employing too many people, and employees stealing resources.

Eskom is a perfect example of what happened in the former Soviet Union, where inefficient enterprises have high costs.

The power utility’s hugely bloated workforce, widespread waste of resources, and corruption and mismanagement significantly increase costs.

For example, Eskom employees gladly approved paying R238,000 for a mop and R80,000 for knee guards. The same goes for poor-quality coal and related problems.

Eskom is losing money not because it sells electricity too cheaply but because of inefficiencies, corruption, theft, and mismanagement.

No price increase will solve these problems, which is why it has continued to record losses despite huge price increases for fifteen years.

The government has been throwing money at state-owned enterprises (SOEs), including Eskom, Transnet, SAA, the SA Post Office, and the SABC.

Despite the bailouts, these institutions are in a worse state than ever. It clearly shows the problem is not funding.

Eskom’s latest electricity price increase application continues this trend, where South Africans fund corruption and incompetence at SOEs.

One consolation is that Eskom’s new management and board know that the power utility must cut costs.

Eskom chairman Mteto Nyati said they are focussing on containing costs at Eskom and rooting out the wrong people.

The Eskom board has asked chief executive Dan Marokane to benchmark the company against international power utilities.

This is to establish how efficiently Eskom is running. It includes whether they have too many employees.

“This is where it is going to be painful. In the next phase, we will be reducing costs. This is leadership’s job and needs to be done,” he said.