THE National Energy Regulator of South Africa (Nersa) granted power utility Eskom an 8% average increase per annum over the next five years.

Eskom applied for a 16% per annum increase for five years, which was opposed by business, trade unions and civil society groups at hearings across the country.

Cecilia Khuzwayo, chairwoman of the energy regulator, said Eskom’s request had come amid a continuing global economic slowdown.

Nersa heard 162 oral submissions in nine provinces from a broad range of interested parties on Eskom’s application.

South Africa’s electricity prices had rocketed by more than 170% over the past five years, while administered prices in other Brics (Brazil, Russia, India, China, South Africa) countries had decreased by more than 36% in the past decade.

The price increases in South Africa contributed to the closure of 440,000 small businesses in the five years to 2011.

Eskom must return to Nersa in a week to outline its application for an increase for energy-intensive users. Eskom had proposed a 20% increase.

Thembani Bukula, chairman of Nersa’s electricity subcommittee, said Eskom would have to recalculate that proposal and the revision was likely to relate to the 8%. Nersa would then decide on the revised application, he said.

Eskom may appeal against the decision, approaching the high court, Mr Bukula said.

Eskom may also approach Nersa for an upward revision if circumstances change, such as if coal prices rise 15%, against a budgeted 10%, he said.

“They can apply again in the next five years but we hope not,” he said, adding that Nersa had strived to anticipate what might happen in the next five years.

“We view the increase we’ve given to be sufficient for Eskom to operate the power system efficiently,” he said.

Nersa would “strive” to keep the price increases granted to Eskom from 2018 onwards to levels close to or at prevailing inflation levels, he said.

Good news for inflation outlook

Treasury officials said the lower-than-expected increase is good news for households and for the country’s inflation outlook.

“Clearly from a business and household point of view a single digit increase is welcome,” Finance Minister Pravin Gordhan told reporters in Parliament.

But he noted that Eskom had to be given an opportunity to respond, “to indicate how they think they will make that an affordable proposition and keep themselves viable”.

“That will be a key concern over this period,” he said.

Treasury director-general Lungisa Fuzile said the Treasury had factored a 16% electricity price increase into its forecasting models, and the lower hike would “impact favourably” on South Africa’s inflation outlook.

Inflation averaged 5.6% over the whole of last year – comfortably inside an official target range of 3%-6%. The Treasury’s budget for this year, unveiled on Wednesday, predicted that inflation would average 5.6% this year, 5.5% next year and 5.4% in 2015.

Democratic Alliance MP David Ross said Nersa’s decision was in line with the party’s policy of inflation- related pricing.

“It’s a step in the right direction – we commend Nersa on the brave step,” he said.

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