Price of Eskom electricity expected to double by 2021

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SANDTON, SOUTH AFRICA – JUNE 14: Eskom CEO Phakamani Hadebe during the National Union of Mineworkers (NUM) and (National Union of Metalworkers Union of South Africa (NUMSA) members protest at Eskom’s Megawatt Park, demanding salary increases on June 14, 2018 in Sandton, South Africa. Both unions have rejected Eskom’s proposed 0% wage offer and are demanding a 15% wage increase across the board and R2, 000 housing allowance increase, among other demands.(Photo by Gallo Images / Netwerk24 / Deaan Vivier)

Buckling under the strain of seemingly insurmountable debt, Eskom looks set to implement massive electricity tariff hikes aimed at staving off a complete financial and structural collapse.

South Africans are inevitably left to foot the exorbitant bill, caused by gross mismanagement, and nepotism, leading to R19 billion in irregular expenditure, coupled with a long list of local and international debts.

Eskom is in the business of supplying energy to South Africa, which puts ordinary citizens in the position of consumers. While the national power supplier has recently announced wage cuts, mass retrenchment and a vigorous auditing and anti-corruption campaign, is it enough to keep the wheels turning?

Unfortunately for South Africans, it’s not enough. It’s all too little, too late. Which isn’t to say the lights are about to go out, well, not just yet anyway.

Government is obviously keeping Eskom afloat. The national power utility supplier also recently secured a R33 billion loan from the Chinese Development Bank. So, it seems things will tick along, albeit uneasily, for a few more years.

But, the state-owned enterprise cannot run on fumes alone. Government hand-outs have worked, until now, but it’s robbing Peter to pay Paul. The taxpayer pays the government, who in turn bails out Eskom. But the taxpayer and the non-income-tax payer are also forced to pay Eskom for electricity.

Eskom electricity tariffs: A look to 2021

The government will inevitably remove the training wheels from Eskom’s unsteady bike, and then the company will be forced to rely on profits, and profits alone.

In an effort to maximize profits, the power utility will raise prices. Sure, municipalities may default on payment, but Eskom will cut them from the grid – or at least threaten too.

In any case, Eskom has a captive market, supplying 90% of all South Africa’s electricity.

Business Live speculates that over the next three to four years, electricity prices will increase by a shocking 110%.

But, speculation is, by nature, often inaccurate. In order to get a clearer look into the murky future, we need to go back in time.

Eskom electricity tariffs: The last 10 years

This isn’t the first time Eskom’s been in the financial dog box, but it’s bad enough to warrant panic from major analysts and economists.

A report by Power Optimal reveals that over a period of 10 years, Eskom’s electricity prices have increased by about 356%, whilst inflation over the same period was 74%.

It’s interesting to note that South Africa has the most expensive electricity out of all the BRICS countries.

Energy analyst, Ted Blom, recently spoke to Times Live regarding the power crisis facing South Africa, noting that at this stage, the energy supplier is deeper in debt than ever before. Blom says:

“By 2019/20 financial year expect a 30% electricity hike, followed by 50% the following year and 30% the other year. This is a reality. Eskom over the past 10 years has come out with a high tariff raising strategy which has enabled them to fleece the country’s economy of some R1.3 trillion.”

When looking into the future of South Africa’s electricity prices it’s important to remember that Eskom is desperately attempting to recoup as much money as possible; a level of debt never before experienced by the company.

From 2008 to 2018 electricity tariffs rose by 356% – that works out to an average increase of about 35% per year.

Speculative increases of 50% – 60%, per year, for the next three years, begin to seem less far-fetched when factoring in negative variables affecting present-day Eskom.

Hopefully foreign investment and careful government initiatives can side-track the looming electricity increases, otherwise, as is always the case, poor South Africans will be the ones to suffer most.

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