Ramakgopa explains Eskom price hikes

South Africa’s government is positioning itself to mitigate rising electricity costs after the state utility, Eskom, requested a 36% tariff hike from the National Energy Regulator of South Africa (NERSA). Electricity Minister Kgosientsho Ramokgopa expressed confidence that the government will step in before NERSA delivers its decision by year-end. The proposed increase stands in stark contrast to the country’s August inflation rate of 4.4%.

Ramokgopa hinted at potential policy interventions to ease the burden. Speaking at a Standard Bank conference in Johannesburg, he emphasized the dual objectives of maintaining Eskom’s financial health while preventing further strain on the economy and the country’s poorest. “We don’t want to undermine economic growth, nor deepen poverty,” he remarked.

Eskom’s application for the upcoming financial year underscores the persistent challenge posed by South Africa’s faltering power infrastructure. Despite a reprieve from the rolling blackouts that have plagued the nation since 2008, electricity prices have surged by 600% since 2006, hampering growth and driving businesses to the brink. In 2023, the government extended a R254 billion bailout to the embattled utility, though this was later trimmed by R4 billion due to unmet conditions tied to Eskom’s debt relief package.

Ramokgopa pledged broad-based relief but provided few specifics, aside from suggesting that certain regulatory requirements might be eased. He voiced optimism that the 36% hike would not materialize and highlighted the potential for price reductions as the country increasingly adopts renewable energy. With coal currently accounting for 80% of South Africa’s power, Eskom retains a dominant position in the market.

The utility’s justification for the tariff increase centers on rising operational costs. Eskom has also proposed additional increases of 11.8% and 9.1% for 2027 and 2028, respectively.

Opposition to the price hikes is brewing. Cape Town, South Africa’s second-largest city, is preparing legal action against the proposals. In July, President Cyril Ramaphosa, addressing the newly formed coalition government, committed to curbing increases in administered prices, including electricity.

Ramokgopa, in a wide-ranging address, also cast doubt on the government’s plans to incorporate natural gas into the energy mix, describing the current approach as fundamentally flawed. He provided scant detail but underscored the urgency of adjusting to external pressures, particularly the European Union’s carbon border adjustment mechanism. This measure imposes tariffs on goods produced with fossil-fuel-based energy, a significant issue for South Africa, one of the EU’s key trading partners. Ramokgopa described it as a “trade instrument” unlikely to foster long-term solutions, but acknowledged that Eskom could charge a premium for its renewable energy to companies seeking to avoid these levies.

In a separate announcement, Ramokgopa revealed that the government is working to expand off-grid power access, aiming to achieve full electrification by 2029. Pilot projects are set to launch in the rural Limpopo province this month.

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