Nkosikhulule Nyembezi
CAPE TOWN - It has now been more than two decades since South Africans thought they could be guaranteed access to an affordable and reliable electricity supply for domestic and industrial use.
Many news reports describe the ongoing electricity blackouts as a manifestation of “stalled” attempts to rationalise the financially embattled Eskom, but as I read the detailed analyses, that doesn’t seem correct: Eskom has for ages held a near-monopoly in the electricity market, but changes to the laws and regulations that govern the sector have started to open the market up to the competition.
As a sign that the authorities are warming to the idea of a competitive electricity market, the National Electricity Regulator of SA (Nersa) recently awarded a trading licence to Cape Town-based Enpower Trading – the second private electricity trading company in South Africa to be granted such a trading licence – allowing it to source predominantly renewable power from multiple independent power producers and small-scale generators, transport this energy across the national and municipal grid networks, and sell it to customers discounted to prevailing electricity tariffs.
Disappointingly, Eskom and Nersa are dragging their feet on the implementation of a progressive revision of tariffs to keep electricity affordable at competitive rates.
Instead, Nersa is sticking to a disputed methodology for new tariffs by proposing an average increase of 7.47% in municipal electricity tariffs from July 1.
The increase would further exclude many poor households from electricity connection, and encourage illegal connections to the electricity grid and a return to the use of unsafe energy sources such as wood and coal, resulting in shack fires and a substantial increase in hospital admissions of children with burn wounds.
This makes a mockery of claims of an increasing annual electrification of households when the people cannot afford to keep their lights and appliances on. The absence of a standardised policy across municipalities on the determination of a baseline, subsidised portion of kilowatts and the lack of provisions for annual upward revision of subsidised kilowatts, has denied the enjoyment of access to electricity to many people who are citizens of South Africa. How did that happen, and what does it mean?
For the coming financial year, Nersa proposes the continued use of the historical method of tariff setting by providing a guideline to municipalities of the percentage increase to be implemented compared to existing tariffs, as well as tariff benchmarks for different customer categories. Unwilling as some may have been to admit the regressive attitude of sticking to the disputed historic method of tariff setting, Nersa is facing two legal challenges to this methodology.
The Gauteng High Court, Pretoria, on March 24 postponed indefinitely an application by several intensive users in Madibeng to set aside Nersa’s approval of the municipality’s industrial tariffs for the past several years to allow for further negotiations between Eskom and affected stakeholders as well as policy interventions by the government.
In another matter, the business chambers of Nelson Mandela Bay and Pietermaritzburg are challenging Nersa’s decision last year to use the same methodology to set municipal tariffs.
Nersa is opposing both applications. During a recent meeting of Nersa’s electricity subcommittee, Nomfundo Maseti, one of the most experienced regulator members, conceded that this practice falls short in law.
I was curious to note that a new Nersa discussion document in a carefully worded sentence concedes that the current guideline and benchmark methodology “does not explicitly show the relationship between the licensee’s cost structures and its tariffs”.
It explains that Nersa would have preferred to use what it calls activity-based costing and marginal costing. This would be an extension of the new tariff methodology it wanted to use for the determination of Eskom’s tariffs for the current financial year.
Eskom, however, obtained a court order on the basis that the methodology was not yet ready, and got a reprieve of one year.
Nersa is working on a fully fledged methodology that will be ready by the end of April, when it will be published for comment. Yet, the proposed electricity tariff increases for the current year will most probably be implemented as scheduled.
I also criticise Nersa for its curtailed consultation process, considering the disgraceful approach of the regulator to only invite written representations before publishing the final guidelines and measures on May 11 to allow municipalities enough time to amend systems for new tariffs from July 1.
If this disgraceful and unlawful approach continues, stakeholders may comment until April 22. Yet, we know that the legislation requires full public participation, and affected stakeholders are already demanding a proper consultation process.
Municipalities are bargaining for widely differing outcomes. The City of Cape Town has budgeted for an average increase of 9.5%, eThekwini residents could face increases of 8.61%, Johannesburg residents 9.61% while Mangaung is only budgeting for a 4.8% increase.
Eskom’s direct customers face an average increase of 9.61% from April 1. But there’s a mystery here. No, it’s not puzzling to see the price of electricity rocketing, given such drastic measures to introduce sustained steep tariffs year after year.
The question is why Nersa is willing to defend its disputed method of tariff setting at the expense of all other goals.
After all, the heavy-handed measures taken to stabilise the energy generation and supply system will probably deepen what is already looking like a depression-level slump in South Africa’s real economy, brought on by surprisingly wide and ineffective policy implementation and investment priorities in the energy and environmental sectors.
In effect, Nersa is taking a conservative approach to defending the disputed tariff system, and this has seemingly taken priority over all other economic goals. Why?
Let me speculate, with the clear proviso that it’s only speculation, and is not based on any direct evidence.
I guess that the ability to maintain Eskom’s monopoly in the energy sector through the current tariff system has become a crucial target not so much because it’s all-important, but because it’s so visible.
Suppose that, as seems highly likely, South Africa sees a huge surge in inflation and a plunge in the gross domestic product in the months ahead as a result of the heavy price burden imposed by a wide range of economic factors on households and businesses.
Will President Cyril Ramaphosa’s government admit that these bad things are happening? Quite possibly not. Politicians preoccupied with re-election battles often try to suppress unfavourable economic data.
So, Nersa’s defence of the disputed tariff system, while impressive to those holding on to the monopoly, isn’t a sign that the Ramaphosa administration is handling economic policy well.
It reflects, instead, an odd choice of priorities, and it may be a further sign of South Africa’s policy dysfunction.
Nyembezi is a policy analyst and human rights activist
Cape Times