The Eskom tariff increase: An alternative view

By Mohamed Fayaz Khan

It is significantly easier to join the chorus of frustration regarding the recent tariff increase awarded to Eskom by Nersa or remain silent for fear of being ridiculed for having a viewpoint that differs with the overwhelming majority of citizens in our country. It is in the spirit of fostering much needed debate that I therefore choose to present these alternative viewpoints because I believe that a healthy informed debate on the future of energy is needed to help us chart a better course to a sustainable future.

The 31.3% tariff increase awarded to Eskom equates to approximately 8c/kWhr. An analysis of the media statement released by Nersa clearly states that included in the increase awarded is the 2c/kWhr levy on the sale of electricity generated from non-renewable sources. Eskom, in its application to Nersa clearly stipulated that the increase was an interim application and did not take into account the “environmental levy”. This therefore means that Eskom in actual fact was only awarded a 23.4% tariff increase. When mentioned in the budget speech, the honourable Minister Trevor Manual was lauded on his visionary thinking and finally taking a firm step to ensure that we slow down the rate of carbon emissions rapidly killing our planet. I’m therefore surprised at the silence of those “environmentalists” now, when the government stands to gain approximately R4 billion from a carbon tax (this was simply calculated by using the total electricity sales achieved last year and multiplying it by the environmental levy). No clarity has been given as to how this is intended to be spent or whether it will merely form part of the treasury allocation for the next fiscal year.

It is my opinion that the money generated from the “carbon tax” be ring-fenced and given back to the citizens of this country as incentives to reduce our electricity consumption. Perhaps more attractive subsidies for solar water geysers for domestic households or high efficiency motors for industry. If this money is not used to reduce the carbon footprint of the average citizen then, it would represent a significant opportunity lost.

Another popular comment by the media and politicians is that there is no protection for the poor with this price increase. Eskom and the large municipalities are mandated by the government to provide free basic electricity to the poorest of the poor in our country. This is allotted in kilowatt hours, not in a monetary value, so these household will not be affected by the price increase in any significant way. The approved tariff increase included a limited tariff increase of 15% to both Eskom and municipalities’ “poor” customers (ie Homelight 1 and 2 tariffs). Although I agree that this still constitutes an increase that is greater than inflation, the perception that no thought was given to the poor in our country is ill-informed if one takes the above into consideration. This is clearly stated in the Nersa media statement so why many leading commentators have chosen to ignore it suggests their opinion was either based purely on the media representation of the tariff increase or that they realised it would be unpopular to not appear to have only the interest of the poor at heart.

Most commentators are asking for competition in the energy sector and the need for us to consider renewable energy. On the first point there remains limited commercial interest in generating electricity because the price of electricity is so low. An obvious parallel would be the telecommunications industry in South Africa. There is significant commercial interest in our telecommunication sector because as South Africans our telecommunications costs rank among the highest in the world. Even the recently completed infrastructure projects that were meant to free us from the shackles of the Telkom monopoly are yet to materialise. It is a sad truth that corporations invest in projects to make the maximum profit and not to enable us to obtain more competition in the market. On the concept of renewable energy, everybody, from the Cosatu secretary-general to the newly appointed minister of energy, the honourable Dipuo Peters, claim to support renewable energy while simultaneously lamenting the high cost of electricity and how it affects the poor. The honourable minister in a recent public statement asked that measures be put in place to shield the poor from the electricity price increase. She then went on to say “we (must) invest a lot of time and resources in expanding renewable energy as a source”.

The reason why renewable energy is not gaining momentum in this country is because it is considerably more expensive than conventional coal-fired power stations. As an indication of how much more expensive renewable energy is one should recall that after the recent tariff increase the cost of electricity is 33.14c/kWh. Nersa has recently released the framework for the renewable-energy-feed-in-tariff (Refit) for potential wind, mini-hydro, landfill gas and concentrating solar power investments in the country. The tariffs sanctioned were wind (R1.25/kWh), mini-hydro (94c/kWh), landfill gas (90c/kWh) and concentrating solar with a storage capacity of more than 6 hours would receive R2.10/kWh. These represent the prices that Eskom would be required to pay for energy that they would then sell at 33.14c/kWh. For clarification, I am in complete support of the Refit framework and welcome its implementation and discussed the above merely to highlight the huge costs associated with renewable energy. I believe that we need to start diversifying the energy mix in our country as we are presently per capita, the worst polluting country in the world. Something to consider the next time we accuse the Americans of being responsible for killing the planet or the Chinese for growing their economy with utter disregard for the effect they have on the environment. I believe, however, that Nersa’s proposal to review Refit yearly will trouble potential foreign investors as this will cause uncertainty about whether the favourable tariffs will be sustained.

Lastly, the common misconception that the tariff increase would be considerably lower if senior management in Eskom took a pay cut or were not awarded bonuses is laughable. Senior management in Eskom constitute less than 1% of the Eskom staff and a reduction of their salaries would have a negligible effect on the bottom line. Likewise, their bonus depends on whether they meet the shareholder (government) targets set at the beginning of each year. If they meet there targets, then they, like any other employee in any other organisation, are entitled to their performance bonus. These managers/professionals are not appointed by government so why should they agree to work for a lower salary when they could potentially earn more in industry with considerably less stress. Furthermore, the security of supply in South Africa is under severe strain and the staff at Eskom have worked effectively to minimise the effects of the crisis in the last two years. They represent trained professionals, engineers and artisans who have chosen not to leave Eskom or South Africa for that matter, but to stay and face this challenge head-on. I for one would like to congratulate them for a job well done.

Even after taking into account the recent increase in the electricity price Eskom continues to be among the cheapest supplier of electricity in the world. I believe that it is time we stopped focusing on the failures of the past (government’s and Eskom’s) and ensure the correct policies are in place to ensure security of supply, diversification of the energy mix and the universal access of electricity to all the citizens of our country. My advice would be to conserve as much power as you can, chose energy-efficient devices and consider alternative energy options if you can afford to eg solar water heaters, gas stoves etc. I believe that that would be the most effective way for us to face this challenge and minimise the effect of rising energy costs on our monthly budgets.

Mohamed Fayaz Khan is an an electrical engineer presently employed in the electricity distribution industry. He is a strong believer in renewable energy and enjoys participating in informed debates.