Eskom CEO Andre de Ruyter recently said electricity is too cheap in South Africa, leading to reckless use and waste. However, data from Eskom shows that De Ruyter may be misguided.
Daily Investor tracked Eskom’s electricity prices from 1950 to 2021 using the power utility’s annual reports.
The data reveals that electricity prices in South Africa were indeed low until 2008. However, after that, large annual increases changed the situation.
In 2008, Eskom’s average selling price for electricity was 19c per kilowatt-hour (kWh), the unit of energy used in South Africa for billing.
Over the next twelve years, it increased by 472% to 111c per kilowatt-hour (kWh). It was the most rapid price increase in history and far exceeded inflation.
To add insult to injury, Eskom wants to increase electricity prices by another 32% from 1 April 2023.
De Ruyter defended the huge tariff increase, saying arriving at the new rate is a mechanical exercise based on Eskom’s position.
De Ruyter failed to mention that Eskom is a monopoly with a bloated workforce, rife with corruption, and known for mismanagement and malfeasance.
Therefore, the “mechanical exercise” to calculate the price increase is based on what Eskom needs rather than on a realistic price of what electricity should cost.
Looking at Eskom’s illustrious past should serve as a guiding light for De Ruyter.
In 1994, Eskom’s average selling price for electricity was 10.32c per kWh. South Africa enjoyed very cheap electricity, but it did not prevent Eskom from achieving excellent results.
Eskom increased revenue by 11.8%, from R13.8 billion to R15.4 billion, and grew net income by 37.8%, from R1.6 billion to R2.3 billion.
By the turn of the century, Eskom was still profitable despite the selling price for electricity only rising slightly to 13.23c per kWh.
|Electricity selling price (c/kWh)||10c||111c|
|Net income||R2.3 billion||-R18.9 billion|
|Electricity sold growth||3.9%||-6.7%|
|Debt (interest bearing)||R33 billion||R357 billion|
Eskom was so well run that it received the Power Company of the Year award in the Financial Times’ annual Global Energy Awards in 2001.
The award recognised Eskom’s technical excellence in plant production, maintenance, and operation and its ability to provide the world’s lowest-cost electricity.
Fast forward twenty years and Eskom is unrecognisable from the once proud power utility which outperformed its global peers.
Apart from being gutted by corruption, mismanagement, and political interference, it cannot even produce enough power to keep the lights on.
Electricity prices in South Africa are also no longer as low as De Ruyter makes them out to be.
Research on the price of electricity for households and businesses in 148 countries shows that South Africa ranks 86th – the more expensive side of the scale.
South Africa’s electricity prices are also higher than three BRICS countries – India, China, and Russia.
Energy availability and costs play a crucial role in competing against other developing nations, and Eskom is doing tremendous harm to the country in this regard.
So, for the Eskom CEO to bemoan “low electricity costs” is disingenuous and can damage South Africa’s economy.
Eskom’s selling price for electricity
Daily Investor tracked Eskom’s selling price for electricity from 1950 to 2001 and compared it to inflationary increases.
It revealed that Eskom performed well until 2008 when the country first experienced load-shedding.
After that, prices started to increase rapidly. However, it did not help the power utility to become more sustainable or prevent load-shedding.
In fact, Eskom deteriorated rapidly during the years of high price increases.
It shows that high electricity prices do not solve Eskom’s problems. It may even have been a factor in the company’s downward spiral.