NUMSA presentation on Eskom’s Multi-Year Price
Determination 2013/14-2017/18
(MYPD3)
“The Impact of Electricity Pricing on Households and
Businesses in the North West ”
Presented by:
23 January 2013
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
BACKGROUND
• Demand for electricity increased with the
commencement of the electrification programme in the
early 1990s.
• In the mid-1990s and early 2000s there were calls for
further investment in electricity capacity in order to meet
the increasing demand.
• However decisions on such investments were not made.
• Therefore in 2007/2008, the country was confronted with
an electricity crisis which resulted in rolling blackouts.
• As a result of these blackouts Eskom was compelled to
embark on a costly capacity expansion programme.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
BACKGROUND
THE UNION’S POSITION
• Eskom is an integral part of the South African economy.
• We acknowledge that Eskom’s capacity expansion
programme is essential.
• We further recognize that some of the costs of Eskom’s
capacity expansion programme must be funded by users.
• Citizens, the poor in particular and local industry cannot
be punished with outrageous hikes to the point of
deepening unemployment, poverty and inequality as a
result of inaction or wrong policy choices by political
elites.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
WHAT ESKOM IS ASKING FOR IN THE MYPD 3
APPLICATION
• Eskom is asking to extend the multi-year price
determination period to five years from the current
three year period.
• Eskom is asking for an average 16% increase per annual
for a five year period in order to fund a R1.09 trillion
revenue requirement.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE UNION’S POSITION ON THE REVENUE REQUIREMENT
• The Electricity Regulation Act (2006) and Electricity
Pricing Policy (2008) allow Eskom to recover its costs.
• HOWEVER, these costs must be efficiently and
prudently incurred.
• NUMSA believes that the R1.09 trillion revenue
requirement includes unnecessary costs.
• Specifically, we are of the view that the return on assets
Eskom is demanding is not justified.
• At the end of the MYPD 3 period, Eskom will have
accumulated R46 billion for its shareholder, our
government, at the cost of South Africans.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE UNION’S POSITION ON THE REVENUE REQUIREMENT
• NUMSA therefore calls on NERSA to scrutinise the
section that deals with returns in the Eskom application
and make a judgement on whether the equity
component of R46-billion is justifiable.
• As stated in the Electricity Pricing Policy (2008),
financial viability is not the only factor to be considered
when deciding on tariffs. A balance needs to be sought
between sustainability of the sector, social equity and
economic growth.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE IMPACT OF THE PROPOSED TARIFF INCREASES ON THE
POOR
LESS JOBS
16%
ELECTRICITY
TARIFF
INCREASES
RISING
HOUSEHOLD
ELECTRICTY COSTS
RISING INDIRECT
COSTS i.e - food
costs
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE IMPACT OF THE PROPOSED TARIFF INCREASES ON
HOUSEHOLD ELECTRICITY COSTS
Percentage contribution of household electricity expenditure to total
household expenditure by expenditure deciles
5
4.5
Percentage %
4
3.5
3
2.5
2005/2006
2
2010/2011
1.5
1
0.5
0
Lower
2
3
4
5
6
Expenditure Decile
7
8
9
Upper
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
NORTH WEST – SOME STATISTICS
• Population of 3,509 million
• Over 20% of the population lives in informal dwellings, well
above the country average of 14%
• 84% of the population use electricity for lighting
• Only 33% of the population aged 20 and older have passed
matric, again well under the country average of 41%
• Average income is R98 903 per year, yet again lower than the
country average of R119 542 per year
• Only the Eastern Cape, Free State and Limpopo have lower
income levels
• Clear from these statistics that the North West is an
economically depressed province with high levels of poverty
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE IMPACT OF THE PROPOSED TARIFF INCREASES ON
EMPLOYMENT IN THE NORTH WEST
• Eskom admits that the mining and manufacturing industries
will be hardest hit by these increases.
• Mining is the backbone of economic activity in many towns in
the North West.
• Currently, mining sector, specifically platinum mining sector is
in crisis mode -14 000 jobs at stake at Amplats
• Electricity tariff increases will only exacerbate the crisis,
leading to potentially more job losses, especially among
unskilled.
• Devastating effects on the livelihoods of the people of the
North West
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE IMPACT OF THE PROPOSED TARIFF INCREASES ON
HOUSEHOLDS, ESPECIALLY THE POOR
• Households electricity price increases will be far above
inflation.
• For the lowest usage residential customers (the Homelight
20A customers), the proposed increases in electricity prices
for years 2 to 5 will be 9%.
• Households will also have to deal with the indirect impact of
the electricity price increases through increased costs of
consumer goods.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE IMPACT OF PREVIOUS TARIFF INCREASES ON HOUSEHOLDS
IN THE NORTH WEST
• Households electricity price increases in the North West have
been far above inflation
• In 2005/06 households spent on average R94 every month on
electricity
• This increased to R166 per month by 2010/11
• This represents a jump of 72% in five years, or an average
increase of 14% every year
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE IMPACT OF THE PROPOSED TARIFF INCREASES ON
OTHER HOUSEHOLD COSTS
• Effect on indirect costs:
• The proposed electricity tariff increases will have a
significant impact on consumer goods as businesses
pass through the costs of higher electricity costs.
• Consumer goods such as food will experience
significant price increases. This will be particularly
devastating for the poor who spend over 30% of their
income on food.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
CONCLUSION
• The effect of approving the current tariff proposals will
be devastating for the country.
• NERSA must reject Eskom’s MYPD 3 application for 16%
average tariff increases.
• NERSA must reject Eskom’s application to extend the
multi-year price determination period to five years
instead of the current three years.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
THE UNION’S PROPOSALS
1. NERSA must grant Eskom tariff increases that match
the inflation rate.
2. Over the next few years, there be a thorough review of
the country’s electricity pricing policy with the aim of
replacing the current practice of short-term multi-year
price determinations with a 20-year electricity price
path and model. The year 2016/17 should be targeted
for the phasing in of a negotiated and agreed longterm electricity price path and model.
NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14-2017/18
(MYPD3)
“The impact of electricity pricing on households and businesses in the North West”
The End!