JOHANNESBURG, 26 OCTOBER 2017 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) has expressed strong opposition to Eskom’s application to the National Energy Regulator of South Africa (NERSA), saying such an adjustment would cause great harm to the metals and engineering sector.
In a submission to NERSA, SEIFSA Chief Economist Michael Ade said the metals and engineering sector is still struggling to meet the high pre-crisis demand levels attained in 2007, with recovery in production having been modest at best.
“If the tariff increase application goes through, it will be a critical setback for the sector’s productivity. The sector exports 40 percent of its production and international competitiveness is vital for its survival. An inevitable consequence of the proposed 19.9 percent hike by Eskom will be more loss of jobs,” said Dr Ade.
He said that high electricity tariffs add to production costs, a situation simultaneously accompanied by the declining average change in selling prices received by local producers, and squeezes profit margins. He said that although production had just recently picked up in the sector, domestic demand conditions are still tough.
Dr Ade cautioned that excessive electricity tariff increases will eventually stifle Eskom’s supply in the long term as large energy-intensive sectors progressively cut down on demand and install their own powerful diesel generators to mitigate costs.
He said that, in the event that NERSA felt that an electricity tariff increase was necessary, then such an adjustment would have to be “at a much lower percentage that has been requested”.
Dr Ade said the metals and engineering sector’s share in manufacturing output is nearly 30 percent and it contributes to approximately 3.6 percent of the country’s gross domestic product. He added that last year the sector employed around 480 000 people directly.
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