A monopoly should not demand cost-reflective prices
Independent energy adviser Ted Blom has lambasted Eskom for its pricing structure, saying it does not work to have cost-reflective prices in a monopoly.
He told delegates at the African Utility Week that using the pricing system to justify very sharp price increases was hurting the South African economy.
“The mark-up in the electricity price is killing industries,” charged Blom.
As Eskom faced no market competition, he said, it should not be allowed to motivate tariff hikes within the current billing system.
“Electricity should not be run at a profit. It’s a primary activity in an economy, like water and infrastructure. The building blocks of your economy should not be profit-driven but cost recovery-driven, like Eskom used to be.
“Prior to 2001, nobody had to call on guarantees from government. “Why is the model so sick that we need double-digit increases every year?” asked Blom.
He stated that the actual price of coal-based electricity was much less than consumers perceived it to be and hinted that a bloated bureaucracy was pushing up prices.
“If you have poor policy, governance and regulation, you end up with an unfriendly tariff regime, which deters investors and industry. We should not be surprised to see we are not moving forward in our economy and seeing more unemployment every year,” Blom asserted.
National Energy Regulator of South Africa (Nersa) electricity pricing head Brian Sechotlho said there was a great need to encourage investment in the industry, but to do this, investors needed to earn a return on their investment.
He conceded that municipalities as well as Eskom needed to be fully ring-fenced and keep proper records.
Nersa last month said it wanted to establish a coal benchmark cost, based on the average rand-per-tonne cost of coal, as part of its decision-making process on Eskom’s multiyear price determination applications.
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