JOHANNESBURG, 29 JULY 2020 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is disappointed at the recent court judgment against the National Energy Regulator of South Africa (NERSA) that the latter acted unfairly in the MYPD4 decision concerning the inclusion of a R23-billion Government grant without allowing Eskom to submit its representation.
SEIFSA economist Marique Kruger said the court’s ruling to review and set aside NERSA’s decision on Eskom’s fourth Multi-Year Price Determination (MYPD4) for the 2019/20, 2020/21 and 2021/22 financial years is really bad news for the Metals and Engineering (M&E) sector, as local companies will have to absorb additional shock in the form of increased electricity price of at least 10%, at a time when the country is buckling under a struggling economy, aggravated by the impact of the COVID-19 pandemic.
“Already, the electricity-intensive sub-components of the M&E sector are under immense pressure and can ill afford this additional threat to their sustainability. Moreover, the ongoing COVID-19 pandemic has compelled a revision of growth forecasts significantly downward from a mild 0.6% to -9.1%, following weak domestic growth, stagnant demand and heightened load-shedding, which compounded increasing intermediate input costs, poor production levels, low capacity utilisation and rising unemployment,” said Ms Kruger.
She said the court’s ruling did not bode well for business, given the fact that the rest of the year was expected to be tough for the sector. The Coronavirus, she said, had erased any hope of recovery in the medium term, with growth projected to occur only in 2022. “
“Regrettably, this judgment merely adds to the strain,” Ms Kruger said.
She pointed out that electricity costs represent a significant portion of the turnover of the electricity-intensive sub-components of the M&E sector. With high energy intensity indicating a high price or cost of converting energy into GDP, and vice versa, generally this resulted in lower economic productivity, she said.
Ms Kruger said companies were still taking strain from increasing energy costs, despite the increasing elasticity of demand for electricity as companies explore other means of sourcing power.
“Any further increase in electricity costs will further slow production and growth in the sector, increase selling prices and result in a decline in exports due to poor export competitiveness. It will also lead to more job losses.
“We recommend that a moratorium be placed on any further electricity tariff hikes in order to accommodate struggling businesses and support the economy at this unprecedented time, characterised as it is by increasing closure of many companies in the sector and an accompanying jobs bloodbath,” Ms. Kruger said.