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Why review power tariffs when councils, government and citizens fail to pay in the first place?

Why review power tariffs when councils, government and citizens fail to pay in the first place?
Stephen Grootes
By Stephen Grootes
26 Sep 2024
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There are small signs that the cost of living crisis may slowly ease over the next few months, but a major battle might be about to begin. The promises of politicians on power prices can no longer defy the laws of physics and economics. And there is probably no point in reviewing power tariffs if many people, and councils, do not pay for the power they consume in the first place.

To listen to talk radio and read social media is to see a simple demand from many South Africans. They cannot afford to pay more for electricity. And considering how the price of electricity has risen since 2007, no one can blame them.

As Power Optimal’s Sean Moolman summarised it neatly, from 1988 to 2007 power prices increased by 223% while inflation during that period was 335%. From 2007 to 2022, power tariffs went up by 653% while inflation was 129%.

Any politician wanting to win votes will have to say in public, as Electricity and Energy Minister Kgosientso Ramakgopa has, that further increases are unsustainable.

Ramakgopa has gone further, promising a full-scale review of tariffs. But so far there has been very little public information on exactly how this review will be conducted.

It is also not certain if Ramakgopa and other decision-makers can make good on this promise.

While many problems vie for the position of “most important” here, perhaps one place to start is with the sheer number of tariffs. 

The current Eskom Tariff Booklet for 2024 runs to a full 60 pages. Each of these tariffs has been precisely worked out and submitted to the National Energy Regulator of South Africa (Nersa).

This is a reminder of the complexity involved in running an electrical system across a country of our size, with our inequality (and with our special interests).

Then there are the roleplayers involved, all of whom have a right to be a part of the process.

There is the regulator, Nersa, the body that adjudicates pricing. In the past, it has held what have become almost a ritual of public consultations before putting up power prices.

Officials would go around the country, holding public meetings. These would often follow a similar pattern; first, an Eskom official would stand up to explain what they needed the increase for. Then would come a long line of residents and organisations explaining why they could not pay any more money.

Finally, Nersa would have to make its decision. In several cases, Eskom has challenged these decisions in court, and won.

The net result of this is that the pricing system has become more opaque and complicated over time. Very few people fully understand it, which means that it has also lost legitimacy.

Read more: No immediate fix for municipal tariff hikes, says energy minister

Eskom’s cash crunch


The real problems come at Eskom, which is well aware of how much money it is going to need over the next few years.

Its generation arm is still under intense pressure and needs a lot more cash to fix its power stations and build new ones. At the same time, it will need to ensure it can continue to pay independent power producers that are now producing electricity.

Then there are the problems with distribution. We need a huge amount of new power lines. As Professor Mark Swilling put it last year, “We need to ramp up from 400km per annum to 1,500km per annum. Never before in South African energy history have we achieved this build rate.”

The amount of money needed for this is huge.

At the same time, Eskom has two other major problems.

The first is the debt incurred during the State Capture years. As the recent return of Mike Lomas shows, corruption cost Eskom an extraordinary amount of money. That money is simply not going to be recouped.

Second, there is the fact that one of the reasons Eskom is in such huge debt is that it is at the end of a long chain of other governance failures.

Because so many people steal electricity and so few councils collect the revenue they are supposed to, councils simply do not pay Eskom. Even when these councils receive money for the electricity they sell to customers they still do not pay Eskom.

Thus, Eskom simply does not get the money owed to it.

This is unlikely to change. Efforts to stop people from bypassing electricity meters seem to have simply disappeared. And, many government departments don’t bother to pay what they owe. 

The ‘user pays’ principle


This is also a reminder that the pitiful state of most councils is directly responsible for Eskom’s position, and thus for the problems with the pricing of electricity. In other words, it shows how the poison contained in the failings of local government can pollute other parts of our state.

Underneath that is another fundamental point, which is that it is surely pointless to try to “review” a tariff system when so many people are simply not paying in the first place.

All of this means that any kind of review process may need to do much more than just look at the numbers and the systems. Rather, it may need to grapple with much more fundamental questions.

Perhaps the first principle that needs to be decided is whether South Africa will continue with the “user pays” principle. As the energy economist Lungile Mashele has suggested, power prices are now so high that continuing with this principle might mean that almost no one can pay for the power they use.

If we do not continue with this principle, then the money will have to come from the government, as difficult as that would be.

It would have to be a very brave review panel to recommend that either users no longer have to pay for what they use, or to say that they must pay the real cost of the electricity that they use.

This means the most likely outcome is some kind of middle ground. Or a fudge that pleases nobody.

Read more: ‘We’re not coping’ — Daily Maverick readers buckle under strain of sky-high electricity costs

In the end, the real problems are pretty simple.

Producing and then distributing electricity is hugely expensive. Most people cannot pay anything like the actual cost. And because the state is so dysfunctional, it cannot manage the system we have in place.

That means that some kind of solution needs to be found that will involve the rich subsidising the poor, while fixing the state at the same time.

This means that politicians need to be involved. Even if they make promises that are impossible to keep. DM

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