COSATU Section 77 Notice on Increasing Electricity Tariffs
Submitted to NEDLAC on 1 April 2010
Reasons for the Protest Action
In November 2009 Eskom applied to NERSA for a 35% electricity tariff increase for the 3-year period ending 2013. The Congress of South African Trade Unions (COSATU) notes that NERSA subsequently approved 24.8%; 25.8%; and 25.9% electricity tariff increases for 2010/2011; 2011/2012 and 2012/13 respectively. This translates into an average increase of 25.5% each year of the Multi-Year Price Determination 2 (MYPD2) period. Ultimately, by the end of MYPD2, electricity tariffs would have increased by a massive 76.5%.
COSATU further notes that NERSA in its MYPD2 determination makes provision for cross-subsidisation and for Eskom to recover its primary energy costs, IPP and co-generation, operating expenditure, depreciation, return on assets and demand side management, in line with the cost-reflective policy provision in the Electricity Pricing Policy.
The current funding model for Eskom entails the following elements:
§ Equity (subordinated loans from government)
§ Debt (borrowing from capital markets)
§ Tariff
The recent trend in electricity tariff hikes shows that high tariffs are being preferred as the key mode of funding for Eskom's capital expansion programme. This means that consumers are called upon to pay for capital expenditure and for services they would enjoy later or services that they may not even be able to afford in future. NERSA gave Eskom a 27.5% tariff increase for 2008/09. In 2009 Eskom applied for an interim price increase of 34% to cover in the main its operational costs and NERSA awarded it a 31.3% which included 2c/kWh environmental levy. So by the end of MYPD2 period, electricity tariffs would have been increased by about 135%, since 2008.
What is even more disturbing is that NERSA has awarded these increases against popular opposition. The Energy Regulation Act enjoins NERSA to act in the public interest even as it strives to ensure the sustainability of the electricity industry. In our view, working in the public interest means that the regulator must work in the interest of the overwhelming majority of our people: the workers and poor. Working in the interest of the majority means determinations that take into account the pressing challenges facing them. These challenges include the high unemployment rate that has been exacerbated by the global economic crisis, high levels of poverty and inequalities in the country. Making determinations in the public interest means not increasing electricity tariffs in a manner that would remove the majority of our people, who have been denied access to electricity for many years, from the grid.
Ultimately, the workers and the poor are the ones who bear the burden of these huge electricity tariff increases. Recent media reports confirmed COSATU's assertion that the rich in the country have the means to hedge the high electricity tariffs through measures like special purchase contracts which they enter into with Eskom. According to these media reports, Eskom continues to charge intensive energy users in the economy an average electricity price of between 9c/kWh and 17c/kWh.
In 2009 the economy lost nearly 900 000 jobs and workers lost about R17 billion. This picture has further worsened the inequalities in our country. According to the estimates of the SA Chamber of Commerce and Industry, these NERSA approved electricity tariff increases would result in a further 250 000 jobs being lost. Furthermore, these increases will push up inflation, leading to the SARB raising the repo rate and thus further pushing workers and the poor deeper into poverty.
Our Demands on Government
1. Government as the shareholder must play a meaningful role in relation to Eskom's capital expansion programme. The funding for capital expenditure must come from the fiscus.
2. We appreciate that government is facing declining revenue due to the economic crisis. It will be important to get the macroeconomic policy right in order to find additional resources to fund the country's developmental programme. In this regard, government must consider, among others, the following measures to ensure additional resourcing for funding Eskom capital expansion programme and economic development broadly:
§ A tax on short-term capital flows
§ A tax on luxury and non-essential imports
§ Creation of special government bonds for Workers' Retirement and Pension Funds to invest
§ A special, once-off tax on corporations and individuals that can afford to pay it
§ A once-off wealth tax
3. We further demand a discussion on the Electricity Pricing Policy with the view of reviewing all provisions, like the cost-reflectivity, that hurt the poor.
4. We demand that government desist in its attempts to privatise electricity distribution and generation of electricity.
5. We call on government not to allow any political party to invest in energy generation and distribution, as that would lead to a conflict of interest.
Our Demands on Eskom
Eskom must;
1. Open up the long-term electricity supply contracts with intensive energy users for public scrutiny.
2. Engage meaningfully and urgently with all key stakeholders to find a sustainable funding model for its capital expansion programme.
3. End excessive usage of consultants that drain the resources that could be use for the capital expansion programme.
4. Fight against corruption at all levels, in particular at senior management level, which if unchecked can drain resources needed for capital expansion expenditure.
5. Review all the contracts it signed with big corporations and ensure that no company is giving an unfair advantage
Our Demands on NERSA
NERSA must:
1. Explain why it has consistently ignored the views of stakeholders during the public hearings on Eskom's revenue applications
2. Reverse the approved tariffs increases it has approved
3. Relate all tariff increases to inflation
Our Demands on Business
1. Sections of business benefitted hugely by being charged scandalously low tariffs for the amount of energy they use, while residential consumers have been made to pay huge amounts for energy.
2. The business sector must convene an urgent summit, facilitated by government, of all energy intensive users in the economy to consider the COSATU proposal for a once-off tax to fund Eskom's capital expansion programme.
3. The business sector must enter into discussion with Eskom to review long-term electricity supply contracts.
The Nature of the Protest Action
The protest action will take the form of marches, demonstrations, pickets and stayaways.
Respondents
1. The Protest Action is directed at the following government departments:
O Energy
O Public Enterprises
O Treasury
O Trade and Industry
O Economic Development
O Cooperative Governance and Traditional Affairs
2. Business Unity South Africa
3. Business Leadership South Africa
4. South African Chamber of Commerce and Industry
5. Eskom
6. NERSA
Signed on behalf of COSATU by:
Zwelinzima Vavi
General Secretary
Issued by COSATU, April 1 2010
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