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DTI studying impact of steep power price rises on industry

DTI acting deputy director general for industrial policy Garth Strachan

DTI acting deputy director general for industrial policy Garth Strachan

Photo by Duane Daws

14th August 2013

By: Terence Creamer

Creamer Media Editor

  

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The Department of Trade and Industry (DTI) is conducting a comprehensive assessment of the impact that South Africa’s steep electricity price increases have had on the country’s manufacturing sector – the study will be used as the basis for a dialogue with industry on possible incentives that could be introduced to mitigate the impact.

Acting deputy director general for industrial policy Garth Strachan reports that the investigation is being under taken with the support of the Industrial Development Corporation and is being headed by former director general Zavareh Rustomjee.

It will interrogate the impact of the “bunched up and sharply escalating” tariffs, which have been compounded, in certain instances, by “triple-digit” increases at the municipal level.

He indicates that the DTI is particularly concerned by the price discrimination between and within municipalities – a situation that has resulted in factories that are “literally across the street” from one another paying completely different rates.

“This is a critical, but very difficult question, because it relates to the funding model of municipalities and that is a very, very big nettle to grasp.”

It is estimated that municipalities derive up to a third of their yearly revenue from electricity sales. This has made them reluctant to pursue distribution-level restructuring and/or to allow for the introduction of net metering, which would allow commercial and residential producers of power to feed back into the grid.

The study is expected to be finalised during the current fiscal year and will be followed by a series of stakeholder engagements around measures, including demand-side incentives, to mitigate the impact of the increases.

The funding for such incentives has become increasingly uncertain, partly owing to the fact that the National Energy Regulator of South Africa (Nersa) did not approve additional demand-side management (DSM) costs in its determination of Eskom’s revenue requirement for the coming five years.

For this reason, new sources of funding will have to be secured for the existing DSM programmes to be sustained and for new programmes to be introduced.

The issue of the negative effect of the electricity price increases has been raised on several occasions by various business organisaitons.

Lobby group the Manufacturing Circle, which has been advocating for an industrial policy measure to help offset the electricity price increases, has been particularly vocal in this regard.

In welcoming the decision by Nersa to restrict Eskom’s yearly increases to 8% over the five years from 2013 to 2018, the organisation lamented the fact that the individual accounts of some member firms had rocketed by more than 230% since 2003.

It also described the “significant mark-ups charged by municipalities” as a cause for “grave concern”.

Edited by Creamer Media Reporter

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