Energy analyst Chris Yelland said South Africans have good reason to dislike the 33% electricity price increase over the next two years, but they are stuck between a rock and a hard place.
Speaking to eNCA, Yelland said that if Eskom was not funded by electricity customers through tariff hikes, it will be funded through the taxpayer via bailouts.
“Whatever happens, we pay,” he said. “The question is – do the customers of electricity pay or do the taxpayers pay.”
He said there is probably not a lot of difference between the taxpayers in the country and the electricity customers.
To explain what Yelland mentioned, Daily Investor did a break-down of the tariff changes and the bailout measures.
In January 2023, the National Energy Regulator of South Africa (NERSA) announced its decision to grant Eskom a tariff increase of 18.65% for the current year and 12.74% next year.
The price hikes affecting consumers who receive electricity supplied directly from Eskom came into effect on 1 April. Price hikes for customers who are supplied with electricity by municipalities will come into effect on 1 July.
In reaction to the decision, the Energy Intensive Users Group South Africa (EIUG), whose members account for 40% of the electricity consumed in South Africa, said that electricity prices are becoming increasingly uncompetitive internationally.
They expressed fear that high electricity prices will leave local industries internationally uncompetitive. They acknowledged that the decision was difficult for Nersa, given Eskom’s challenging financial position.
Cape Town City mayor Geordin Hill-Lewis called the tariff hikes “unfair, unaffordable, and unjust”.
He said there are other ways to ensure Eskom is funded sustainably, including cutting corruption and reducing the payroll of the utility.
Finance Minister Enoch Godongwana announced an R254 billion plan to bail out more than half of Eskoms debt at the budget speech this year.
Taxpayers’ money is given directly to Eskom so that debt repayment fees do not crush the utility.
The bailout package is separated into two packages and will be executed in phases over the next few years until the 2025/26 tax year.
The process has been staggered as an attempt to keep South Africa’s debt-to-GDP ratio stable.
This bailout comes with strict conditions.
- Eskom must prioritise capital expenditure in transmission and distribution.
- Eskom must focus on maintaining its existing generation fleet to increase the energy available.
- The relief is only to be used to settle debt and interest payments.
- Eskom must implement the recommendations from an independent assessment of its operations commissioned by the Treasury.
Eskom’s dire finances
No matter how Eskom is financed, the dire position of the utility means that there is a big bill to foot.
The Eskom debt relief plan has been implemented in response to Eskom’s R423 billion debt burden.
Last Friday, Eskom released interim financial results for the six months that ended 31 September 2022, which showed that the utility made a R3.8 billion profit.
However, Eskom said that revenue from electricity is usually higher for the first six months of the financial year as these are the winter months when demand for electricity is higher.
The R3.8 billion in profit is down from the R10.6 billion the utility made over the same period in 2021.
Yelland said that having South Africans move off the grid by self-generating will not hurt the utility by decreasing revenue.
Eskom is losing revenue by implementing load-shedding as the utility cannot generate revenue through that period.
Making provision for self-generation decreases pressure on the grid, allowing less load-shedding to be implemented in time.