Crisis of Power

Text size +-
South Africa's ongoing electricity shortages, which have resulted in widespread blackouts and industry shutdowns, are having an increasing impact on the economy, hitting at productivity and consumer confidence, and threatening to push up the country's already high inflation rate.

Since late last year, when state-owned utility company Eskom began announcing scheduled power cuts and a scaling back of delivery due to capacity shortage, concerns have been mounting as some of South Africa's biggest industries have been hit. In late January, much of the country's mining sector stopped operations for several days after a large part of Eskom's grid went down.

Fears of the power shortage's inflationary impact have been fuelled by Eskom's recent request to increase tariffs by 53% in 2008/09, rather than the 14% hike already approved. In a report issued on April 8, Eskom said it would have to double its rates by 2010.

The plan released on April 8 suggested more affluent residential customers could see their power bills raised by between 63.5% and 100%, while offering discounted tariffs for less well-off customers.

On March 26, soon after Eskom announced it was seeking a further increase in prices, Federation of Unions of South Africa (Fedusa) called for a moratorium on electricity price increases.

"We are against the move as we feel the poor will be hit hardest by the hike," the federation said in a statement. "Workers and the poor must not be made to pay for the mistakes of the government's bad planning with regard to the electricity crisis."

However, industry may escape the worst of the price rises, with the Eskom's 62-page proposal referring to a "business rate" differing from that charged to homeowners and other small scale users, though this was not fully explained in the report.

The opposition Democratic Alliance had called for full disclosure of Eskom's report backing its tariff increase, saying there were no substantial grounds for a public enterprise to keep information about price rises a secret from the public.

"Given that, if approved, the tariff increase will have a substantial effect on consumers, the public cannot be expected to accept the hike without knowing the grounds on which the request has been made," the statement said.

It is not just South Africans' hip pockets that are being hit by the power crisis. In early April, First National Bank (FNB) and Stellenbosch University's bureau for economic research released the findings of thier latest consumer confidence index survey, which showed a dramatic 10-point drop, the greatest fall since late 2004.

According to Cees Bruggemans, chief economist at FNB, one of the reasons for the decline was the ongoing power shortage and "electricity price shocks still to be absorbed".

Eskom chief executive Jacob Maroga said in late January that South Africa would probably be facing power shortages until at least 2013, when the new plants being built under its $42bn construction programme come on line.

In the meantime, Eskom is trying to plug the supply gap, working to bring two decommissioned coal fired stations back on line and stepping up imports of electricity. On April 9, it announced it had signed an agreement with Mozambique to import an extra 250 MW of power from the Cahora Bassa hydro-electric power station, bringing the total it will import from its neighbour to 1500 MW.

The utility has even announced plans to distribute 20m compact fluorescent light bulbs by the end of the year as part of its programme to reduce energy consumption.

The government has already thrown its weight behind a further round of price rises, with the cabinet issuing a statement on March 20 that said, "South Africans must come to terms with the reality that it would be difficult for Eskom to continue to provide the cheapest electricity rate in the world."

The National Energy Regulator of South Africa (NERSA) is to hold public hearings to discuss Eskom's application and is scheduled to hand down its final decision on June 6.

With consumer inflation having hit 9.4% in February, the 11th month in a row price rises have exceeded the central bank's target limit of 6%, a decision to authorise some or all of the requested tariff hike, however justified, will only add to inflationary pressures.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In South Africa

South Africa: Unsecured loans weigh on banking sector

Bankers have been quick to downplay weak results from one of South Africa’s largest providers of unsecured loans, saying the decline in profits at African Bank Investments Limited (ABIL) does not...


Which markets are pioneering lower-carbon desalination technologies?

Long seen as a high-cost, energy-intensive process, desalination mega-projects are seeking to tap renewable resources to limit the cost and environmental concerns of this crucial technology.