The decision by the National Energy Regulator of South Africa (Nersa) to grant State-owned Eskom an effective tariff increase of 13.82% for 2019/20 has been met with hostile reactions, with various parties condemning the decision, saying that it will have severe ramifications for the South African economy.

Nersa announced this month that it had granted Eskom a 9.41% tariff increase for 2019/20 under its fourth multiyear price determination (MYPD4) application for 2019/20 to 2021/22.

However, a 4.41% increase already approved under a previous Regulatory Clearing Account application takes the overall increase for 2019/20 to 13.82%.

Nersa granted Eskom further increases of 8.1% for 2020/21 and 5.22% for 2021/22 under the MYPD4 application.

North-West University Business School economist Professor Raymond Parsons said the tariff increases should have been pegged to the inflation rate in present circumstances.

If combined with the other current cost increases in the economy, as well as the ongoing impact of load-shedding, forecasts of economic growth for this year will now possibly have to be reduced to about 1.3% from 1.5%, as predicted in the most recent national Budget, he said.

The South African Local Government Association (Salga) agrees that the increase is still high and above the cost of living, which will negatively impact on hard-pressed small and big businesses, as well as South African citizens.

The increases posed a risk to the country’s economy and to all municipalities, which were already facing fundamental changes and transition within the energy sector, Salga explained in a separate statement.

Coupled with many municipalities being cash strapped, losing customers and facing record-high nonpayment, owing to the ever- increasing electricity prices, unemployment and the stagnant economy, Salga lamented that the increase placed further pressure on the financial sustainability of municipalities.

In this respect, Business Unity South Africa (Busa) cautioned that the cumulative tariff over the next three years might undermine economic recovery efforts, considering that electricity was a major cost input for business.

It added that the unintended consequences of Nersa’s decision might include a further decline in Eskom’s customer base, as users would likely seek more reliable and cost-effective alternatives.

Busa also cautioned against the cost of organisational inefficacies at Eskom being passed on to end-users and consumers.

Additionally, according to Minerals Council South Africa, the substantial tariff increases would have a major impact on the South African mining industry’s cost structure, thereby jeopardising the viability of marginal and lossmaking mines and, inevitably, accelerating job losses at energy-intensive mines in particular.