South Africa’s reaction to the increase to electricity prices
This entry was posted on March 4, 2010.
So, NERSA last week announced that electricity prices would indeed be going up, albeit not quite as much as Eskom applied for. The decision was made to increase the tariff by 24.8 percent from April with additional increases of 25.8 percent in 2011 and 25.9 percent in 2012. This effectively means that the average consumer will be paying double what they are now, within 3 years. Perhaps we all just need to turn to sustainable energy sources such as LED lights, Solar Power and Wind Turbines.
Either way, this electricity price increase is going to have a massive effect on the lives of people and their businesses. Let’s take a look at what South African organisations and the general public have had to say about the hike in electricity prices…
Job losses and job creation:
The biggest concern regarding the increase in the price of electricity is that small businesses are going to struggle and thousands of jobs are going to be lost.
The South African Chamber of Commerce and Industry (SACCI) stated that the electricity price hike would have a severe effect on job retention:
“SACCI estimates that approximately 250 000 jobs will be lost as a consequence and it will be a factor in CPI remaining outside the target range. Statssa reported today that CPI is already outside the range at 6.2%.”
The Steel and Engineering Industry Federation of South Africa (Seifsa) added that the increase in business electricity prices contradicts the country’s budget which was announced recently:
“This setback for business and its employees comes a week after the positive budget and [Industrial Policy Action Plan 2] focused on creating an additional 500 000 jobs for new job entrants and create 2,5-million jobs over the next ten years respectively. The first will now be a lot harder to achieve and later will have to start by mopping up the unemployment caused by this announcement".
Effect on small to medium size business:
To give you an indication of how this electric price hike will affect small business owners, I found this article relating to Sue van Tonder who runs 3 businesses of her own. She has two fish shops as well as a bakery. Her monthly electricity costs are on average about R24000. Within 3 years, this will double. That effectively cancels out almost her entire profit margin each month. Her only option will be to release some of her workers and get more involved herself.
There have also been comments stating that the electricity price hike will have an extremely negative effect on pension funds country wide as well. The Institute of Retirement Funds (IRF) had the following to say:
"Typically, employers contribute around 7.5 percent to employees' pension funds, with employees themselves contributing a like amount. Those employer contributions, however, are not statutory and it is entirely possible that employers will, in fact, be obliged to reduce their contributions as the inflationary effects of the electricity price hikes hit their bottom line."
The motor industry:
Retail Motor Industry Organisation (RMI) commented that the motor industry was going to struggle even more with the introduction of increased electricity prices:
"The recession has taken its toll on all aspects of the motor industry; with small businesses particularly hard hit... many have had to close. In the face of sacrificed profits, dwindling cash flow and increased costs, businesses in the repair and service sectors, for instance, will find themselves under greater financial pressure. Many will not be in a position to weather the storm, with those at the lower end of the market most vulnerable."
What does the general public have to say?
I recently checked out a forum on MyBroadband.co.za and found a post that had been viewed over a thousand times and had a massive response from visitors to the forum. Here are some of their comments regarding the increase in electricity prices:
“Eskom started at 35%, public hearings probably argued for inflation at 8 or 10% with leeway to 15%. NERSA settles somewhere in the middle with 20 to 25%. Eskom was probably after 25 to 30%.”
“What's happening with renewable energy? Have government made any plans to start with a proper implementation / testing strategy?”
“Salaries only increase by 6%, if that, but electricity costs go up by 25%, triple inflation. I don't get it. As far as I can tell, continual price increases higher than inflation essentially means you are going after money that does not exist!. Look what happened to the world economy when they essentially ended up need more money than actually existed”
“I'm not just worried about the increase in actual electricity prices, but mainly the increase in all other goods and services”
“I will be kitting my house with as many solar panels as I can fit on the place. I think that with the increase in electricity cost, solar power is becoming more and more viable. I have a quite a lot of flat surface area on my roof... will start with a solar geyser and from there, solar panels and batteries!!”
As you can tell, there has been an extremely negative response from organisations around South Africa and even more so from the average Joe trying to make it by in South Africa. The fact is that the decision has been made and is here to stay. As consumers, we will have to adapt to the increase in electricity prices and perhaps look at ways of finding alternative means of energy.