The recent Eskom tariff hike application to the National Energy Regulator of South Africa (Nersa) has rattled some cages within business, labour and civil society. These apprehensions are understandable, especially since companies are already contemplating downsizing and retrenchments as a way of cutting costs and navigating the current economic downturn.
Having identified the electricity supply capacity problems from as early as 1998, Eskom failed to act timeously to avert the 2008 countrywide power outages owing to fundamental institutional weaknesses. These governance challenges and inadequate regulatory mechanisms on the part of Eskom resulted in debilitating power shortages, which led to the closure of much of the country’s mining industry for four to five days as well as close to one-million job losses in the country.
The lack of investment or underinvestment in energy infrastructure made it difficult for Eskom to meet increased electricity demand and, subsequently, Nersa allowed Eskom to increase its standard average price by 25% for each year of the period covering the multiyear pricing determination (MYPD). It appears, therefore, that Eskom is making consumers and businesses pay for inefficient capital expenditure, which will have dire consequences, particularly for small businesses.
According to the Department of Energy’s Integrated Resource Plan (IRP) 2010, another energy shortfall will hit South Africa by 2020 if further provisions are not made.
While we recognise the importance of having a sustainable and financially sound power utility, there is a need to balance Eskom’s financial health with the affordability of electricity to ensure that consumers do not suffer unduly and that South African businesses are able to remain globally competitive.
The high and continually rising price of electricity is not only unsustainable, but also goes against current government plans to achieve 7% economic growth a year in order to create five-million jobs by 2020. As an emerging economy, South Africa’s future growth is reliant on increased provision of electricity.
In the Gauteng province, a number of refineries and smelters are closing down, and some are threatening to relocate to countries like Lesotho and Swaziland, while others have embarked on massive retrenchments as a result of high electricity tariffs.
As a province that accounts for about 30% of total employment in South Africa, Gauteng has to create roughly 1.5-million additional jobs (or 150 000 additional jobs a year) by 2020, in line with the New Growth Path target. According to the latest labour statistics, the unemployment rate in Gauteng is currently 24.8%, with about 69 000 jobs created in the third quarter of 2012. In terms of year-on-year comparisons, the province contributed around 211 000 jobs (out of 327 000 created nationally) and decreased the unemployment rate by three percentage points.
The Gauteng Department of Economic Development launched Rea-shoma, a job creation campaign, last year with the objective of mobilising Gauteng-based companies to partner with government in developing interventions that are geared towards creating employment, especially within sectors that are highly labour intensive.
Although the statistics indicate that the province’s economic growth seems to be improving, given the consistent positive growth in employment, this is from a very low base as a result of job losses suffered during the electricity blackouts of 2008 and the global economic crisis.
The recent move by Eskom is definitely going to stifle growth, especially in struggling energy-intensive sectors, such as manufacturing. This has the potential to hamper government’s aim to reduce unemployment through strategic partnerships with the private sector and render our economy globally uncompetitive and less attractive to foreign direct investors.
We can only hope that the Nersa decision regarding Eskom’s application to increase electricity tariffs will strike a balance between Eskom’s financial sustainability and the need to ensure that our economy is competitive while also creating and sustaining jobs.
Policy coordinator in the office of the Gauteng MEC for Economic Development