The National Energy Regulator of South Africa (Nersa) on Wednesday granted Eskom an average tariff increase of 27,5% for the 2008/9 financial year, which included the 14,2% it had already granted the state-owned power utility in December last year.

This would allow Eskom to recover primary energy costs of R2,8-billion, but disallowed R12,5-billion of the R15,5-billion that it had requested, Nersa chairperson Collin Matjila said.

Eskom had asked for a 60% increase in tariffs.

If current economic conditions were to continue, the regulator projected electricity tariff increases of between 20% and 25% for the next three years, he told reporters at a Pretoria briefing.

One of the bigger amounts of money that the regulator disallowed Eskom, was for its accelerated demand side management programme, at R2,5-billion, which Matjila said government should fund.

Nersa’s ruling also blocked Eskom from recovering from customers its overspending on primary energy, in 2006/7 and 2007/8, amounting to R7,5-billion. The regulator recommended that policy should take into account unforeseen changes in primary energy cost. This included policy to protect primary energy as a strategic source, so that supply was not threatened.

Eskom generates some 95% of its power from coal and left the economy reeling in January, when low stocks and wet coal led to nationwide load shedding, causing the mining industry to shut down.

Nersa should also develop a mechanism that took into account the efficiency of costs, the prudency with which costs were incurred, and Eskom’s ability to control and predict these costs, when it applied for future tariff increases.

Another focal point of Matjila’s request was that Nersa would protect the poor from the tariff increase, limiting this to only 14,2% for its poorest customers of municipalities.

He also said that government should inject the R60-billion funding that tit had pledged sooner rather than later. Electricity regulator member Thembani Bukula reiterated this by highlighting that Eskom needed large amounts of this money in the short term.

“Bigger payments are required now, not later,” he stated, adding that government needed to "front-end" its funding of Africa's biggest power utility.

Bukula said that Nersa recommended R12-billion of State funding should go into Eskom this year.

Economists.co.za director Mike Schussler said that the price increase would be a shock for both industry and consumers, and would also have a negative effect on job creation.

"Essentially, we're paying for mistakes made in the past," he said in a telephone interview.

Schussler went on to say that governent must "come to he party" in providing funding to Eskom, but that it was a "catch 22 situation", where the State would strike a balance between "how much it can afford to support Eskom, and how much it could afford to not provide support".

The South African government welcomed Nersa's announcement.

"It confirms government’s view that, as a country, we cannot avoid higher than normal electricity price increases, but at the same time we have to be cognisant of the current economic hardships faced by many of our people,” the Minerals and Energy Minister, Buyelwa Sonjica, said.

She stated that a team from the National Treasury, the Department of Public Enterprises and Eskom was currently working to finalise the appropriate fiscal injection by the State to strengthen Eskom’s balance-sheet to enable the company to enter financial markets competitively.

Matjila said that the 60% tariff increase that Eskom requested only three months after it had already received a 14,2% hike had proved an “unprecedented and extraordinary challenge” for the regulator.