The higher-than-inflation tariff increases granted to State-owned Eskom by the National Energy Regulator of South Africa (Nersa) will have a major impact on the South African mining industry’s cost structure, Minerals Council South Africa chief economist Henk Langenhoven said on Thursday.
The increases, which amount to nearly two-thirds of what the power utility applied for, will jeopardise the viability of marginal and loss-making mines and, inevitably, accelerate job losses at energy-intensive mines in particular, he asserted.
“The mining industry consumes around 30% of Eskom’s yearly power supply, for both mining and smelting activities. The industry has worked closely with Eskom to allocate demand to off-peak hours. And, in addition to being a major customer of Eskom, it is a consistent and early payer,” he argued, adding that, as a result, the mining industry fundamentally supports the financial wellbeing of Eskom.
Langenhoven warned that if the mining industry’s electricity use were to decline as tariffs make certain operations and activities unprofitable, Eskom will not achieve its targeted sales volumes.
This will inevitably result in additional substantial increases in electricity prices across the country, that will have to be paid by industrial and private consumers alike, he lamented.
The Minerals Council, however, welcomed Nersa’s stronger position in terms of impropriety and corruption at Eskom, as well as the prescribed measures Eskom is taking to reduce costs, address electricity supply concerns, develop maintenance plans for its assets and address inefficiencies and design failures at the Medupi and Kusile power stations.
The R23-billion a year in support, which was announced by the National Treasury in February, combined with Nersa’s stricter position and President Cyril Ramaphosa’s proposed structural changes to Eskom, should improve the efficiency of the power utility, the council said.
While these measures will take time to deliver results, it is hoped that they will mitigate the consequences of excessive tariff increases since 2006 as a result of State capture and the gross mismanagement of Eskom, the Minerals Council said.
Nersa on Thursday approved yearly electricity tariff increases of 9.4% for 2019/20; 8.1% for 2021; and 5.2% for 2021/22 in terms of the fourth multiyear price determination (MYPD) period.
Nersa further approved an additional 4.4% tariff increase in terms of Eskom’s third MYPD Regulatory Clearing Account application for year five, which will, in effect, result in the electricity tariff for 2019/20 increasing by 13.9%.
The increases amount to a compounded increase of 9.7% over three years, which is 24% higher than the current electricity tariff.