JOHANNESBURG, 07 MARCH 2019 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is bitterly disappointed by the decision by the National Energy Regulator of South Africa (NERSA) to grant Eskom above-inflation electricity tariff increase of 9,41% and 8,1% respectively in the next two years.
Although Eskom’s initial application to NERSA had been for a 15% annual electricity tariff hike for the financial years 2019/20, 2020/21 and 2021/22, SEIFSA had argued, in its submission to the Regulator, for an increase equal to or below the prevailing prime rate of 5.1% at the time.
Speaking after NERSA’s announcement this afternoon, SEIFSA Economist Marique Kruger said the decision to grant Eskom increases of 9,41%, 8,1% and 5,2% over the next three years is deeply worrisome, especially since a cap on tariff increases would have contributed directly to reduced intermediate input costs for beleaguered businesses and impacted positively on businesses’ bottom line.
“Considering that investment decisions are often driven by the opportunity cost and the return on investment, NERSA has missed a unique opportunity to support businesses towards improving profits. A much lower tariff increase would have rendered businesses in the metals and engineering cluster much more attractive for both domestic and foreign direct investment, thus impacting positively on employment,” Ms Kruger said.
She added that given the current depressing business environment, an impending carbon tax, high petrol prices and additional logistics costs, NERSA’s decision did not bode well for business. She said NERSA’s decision was certain to lumber companies in the M&E with higher operational costs.
Ms Kruger noted that energy is a vital input for industrial production and the broader M&E industries, which collectively spend approximately R14 billion on electricity per annum. She said NERSA’s ill-advised decision was bound to worsen uncertainty within the sector over the next three to four years, making it more difficult for companies to plan production processes ahead.
“The difficulties will also span higher input costs, increased volatility in production and low sustainability of current job numbers. The direct impact to electricity-intensive sub-sectors carrying high job numbers will be alarming, since more companies may close down,” Ms Kruger cautioned.