Nersa costs South Africans even more in tariffs

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JIMMY MOYAHA: The National Energy Regulator of South Africa [Nersa] has, in an effort to correct the R54 billion mistake that it has cost South Africans, announced that they will be increasing electricity tariffs over the next two years by 8.8%.

For context, we were at a 5.4% increase over 2026/2027 and 6.2% over 2027/2028. So in two years we’re going to be increasing those two tariffs to around 8.7% and 8.8% respectively.

For more on this I’m joined on the line by our resident energy expert, independent energy analyst Tshepo Kgadima, to see if we can make sense of it. Mr Kgadima, always lovely having you on the show, even if it is to discuss matters that pain consumers.

Are you surprised by this? I know you and I spoke about the initial error in the calculation and what it meant for potential recalculations in future. It seems we finally have that and it’s not looking good.

TSHEPHO KGADIMA: Good evening to you as well as to the listeners of SAfm and Moneyweb.

No surprises at all, because it has now become evident that Eskom has embraced the philosophy of ‘aim for the moon’, and the worst thing that they will do is to hit the top of a pylon – and that is really what happened.

Initially I think they had wanted a R107 billion increment on the tariff. They got R54 billion. Judge Swanepoel in the high court said ‘Well, you did not engage in public participation; therefore go back and conduct public participation’.

Of course Nersa then itself makes a mockery of the whole process in that I think the consumers are R700 million worse off than the initial so-called out-of-court settlement that was reached, because the so-called multi-year pricing methodology is not scientific at all.

Actually, it is based on guesswork, and it is not surprising that Eskom itself – if indeed they were convicted and confident that R107 billion was the effective increase they needed to be able to stay in business – were just ready to accept the R54 billion, which is now a R54.7 billion tariff increase.

But what has it led to?

I think it shows that in terms of Nersa itself, and I am on record as saying this – that level of incompetence is going to cost this country a great deal economically.

Your previous guest I think confirmed that.

But on the other hand, remember that Eskom recently agreed to the suggestion from the minister of electricity that there has to be concessionary pricing given to the so-called energy-intensive users and specifically the ferrochrome and ferro-manganese smelters, whereby now they too will have a tariff of 87 cents [per kW/h].

And they are hoping to bring it down even further to 65/67c, which is a tariff that is currently enjoyed under the so-called ‘negotiated pricing agreements’ by the aluminium smelter – even though that is for a period of one year.

But, if anything, it has confirmed the long-standing argument I have advanced – that the cost of electricity generation from baseload sources is an average of 32c, or two US cents at the current exchange rate.

It therefore is possible for Eskom to bring its tariffs to a standardised uniform tariff, and 87c appears to be the figure to which they now agree.

That will be a figure that not only keeps the energy-intensive users in business but, if anything, will comply with the Constitution of the Republic in terms of which a state-owned entity such as Eskom cannot violate the Constitution, specifically in terms of Section 217 and I think Section 54 of the Public Finance Management Act, where they are discriminating against the electricity consumers, and even further go on to violate the provisions of the Eskom Conversion Act, particularly I think in Sections 65A and B, which demand that Eskom has to operate to ensure universal access to electricity in the least cost possible manner.

The least-cost-possible manner is a uniform standardised tariff of 87c – which they’ve already given to the corporate entities – and then [they must] ensure that they not only comply with the Constitution, but that the economy of this country can itself be competitive and grow and create the necessary jobs.

JIMMY MOYAHA: Before I let you go I want to get your thoughts on customer affordability. This is something you and I have spoken about in the past – to say that increases are not a sustainable way to solve this problem.

If we’re looking at the decreased demand that Eskom continues to go through and we’re looking at this increased tariff cycle that we appear to be entering into from a consumer perspective, at what point does financial viability start to come up as a conversation?

Just because you’re charging customers more, if your customer base continues to decrease does it mean you’re going to necessarily earn more?

TSHEPHO KGADIMA: Well, the auditors of Eskom are on record as having stated grave doubts about the viability and going concern status of Eskom.

I agree with the auditors because, when you look at the numbers at Eskom, we are seeing a marked increase in customer defaults – and particularly by municipal customers.

On the other hand, you are seeing the closure of energy-intensive industries.

You are not seeing an opening up of other energy-intensive user industries such as artificial intelligence and cryptocurrency mining, which are largely datacentre-driven and therefore increase the energy consumption.

And now it is not surprising that Eskom says it has about 13 000MW in cold reserve, a 13 000MW capacity – that is almost three Medupi or Kusile power stations in terms of capacity.

That is on the one hand and that is driven largely by the eightfold increase the energy-intensive users have suffered, I think, since 2008, where now 40% of the cost of doing business is accounted for by electricity.

So we are seeing, on the one hand, commercial as well as domestic users of electricity in particular are on an unprecedented exodus from the grid, from Eskom, and energy-intensive user industries are closing and there are the defaults from municipal customers.

There is no way that Eskom can remain a going concern.

But what shocks me the most – and I’ll be interested to hear what the president says when he opens parliament – is how it is possible that they have allowed a situation in which the Eskom board and management can continue to take policy decisions and engage in decisions that, if anything, will imperil the organisation …

Such as the unwarranted 14 000km transmission grid expansion at a whopping R440 billion before cost overruns, which will probably be double that number – and when there is no clear line of sight as to how they are going to fund that transmission expansion and, even worse, continuing to procure electrons which are in any shape or form [and] not needed, and continue to burn diesel when they have that 13 000MW in cold reserve.

It is shocking that even today they will say, well, we actually spent R4.1 billion less than in this same period last year – when in fact I’m on record [as saying] they should not be burning even one litre of diesel to generate electricity.

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And they are connecting the intermittent energy sources which are 100% redundant.

Plus – the burning of diesel and a number of other inefficiencies have resulted in over R105 billion in fruitless and wasteful expenditure.

Cabinet and the president are seemingly unperturbed in terms of the devastating effect this has on the economy and on ordinary people, who are continuing to suffer a great deal.

Most people now either freeze in winter and [swelter] in summer because they can’t afford cooling or heating, as electricity has just become unavoidable. And therefore, again, [Eskom is] perpetuating the various violations of the various [prescripts] of the Bill of Rights in the Constitution of the country.

This is an emergency situation that has to be attended to.

One can only hope that we [get] to see an increase in terms of alertness. And neither civil society nor organised business are approaching the courts for relief, because I believe if they were to approach the courts for relief to campaign, and ask the court for relief to bring about a standardised uniform tariff of 87c – as Eskom has already admitted that it can supply electricity to everyone in this country at 87c a kilowatt hour – there is no reason that should not be the case.

Civil society and organised business now need to rise because the politicians have failed us, the bureaucrats have failed us at Nersa, and those that are in charge of Eskom have also failed us – to the detriment of the economy.

JIMMY MOYAHA: And to the detriment of consumers.

Certainly we will keep an eye on this and see if the president does indeed make any announcements come the State of the Nation Address set for later this week.

We’ll leave this conversation on that note. Thanks so much to independent energy analyst Tshepo Kgadima for joining us to look at the latest confirmation that Nersa will be increasing tariffs even more.

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