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Wednesday May 13, 2015

Warning on Eskom increase

Granting Eskom's request to hike the price of electricity by a further 12.61 percent would have a "devastating" effect on the South African economy, analysts have warned.

This comes as the National Energy Regulator of South Africa (Nersa) revealed it would decide by the end of this week whether to grant the embattled power utility permission to raise the price of electricity for the second time this year.

Eskom was granted permission for a 12.6 percent increase to direct customers and a 14.2 percent for municipalities this month.

The eThekwini Municipality has approved a 12.2 percent increase in electricity - two percentage points less than Eskom was granted. It comes into affect on July 1. But, if Eskom has its way, eThekwini residents would pay 24.8 percent more for electricity.

According to Eskom, the second increase was essential for it to recover the R32.9 billion it spent to run its open cycle gas turbines and R19.9bn for the short-term power purchase programme. But analysts slammed Eskom's request, saying it would leave South Africans - already facing rising food and petrol costs - under more financial pressure.

Neil Roets, chief executive of debt management company Debt Rescue, said granting Eskom a second increase would push many consumers "over the edge".

"Consumers are already struggling as it is. At the moment almost half of all credit active consumers are over indebted, meaning they are in arrears with at least three payments with one of their accounts. They just cannot afford all these price increases. It goes further; it will not just affect them directly, it will affect them indirectly because if the electricity prices go up, the prices of all other goods and services go up in line with that. It is going to be devastating to consumers," he said.

Dawie Roodt, an economist with the Efficient Group, agreed. "We are in deep trouble," he said yesterday.

"The production side of the economy is not doing well and the only thing that kept this economy going was the demand side. In the last three years, however, we have had substantial increases in just about everything and electricity is a very good example.

"Our electricity problem is hampering and reducing the production sector of our economy which will impact on the demand side of the economy as people will spend more on electricity and therefore have less money available to spend on other things. I am afraid that this will be bad for the economy.

"It's a double whammy. On the one hand you do not have enough electricity for the production side of the economy and the other hand you have this massive increase in the price of electricity. It will be devastating," he said.

Roodt said the government needed to develop a clear plan for Eskom, starting with its management. "We do not know who is in charge at Eskom. They don't even have a permanent boss at Eskom, so how can they ask for increase in electricity when they don't have a vision on how they are going forward? Nobody knows what the correct price of the electricity should be because no one has enough information for all the supply and demand forces of the economy," he said.

Ina Wilken of the SA Consumer Union said raising the price of electricity again would impact millions of South African families.

"There is not one sector of the economy that will not be affected. The ordinary person is going to be hardest hit and this will put them in an even more dire financial situation than they were before. It is just going from bad to worst as increase will have a detrimental effect on peoples disposable incomes," she said.

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