Joburg must scrap new R200 prepaid electricity fixed charge

3 July 2024

The City of Johannesburg’s recent decision to impose a new R200 fixed service charge (R230 including VAT) on the prepaid high-usage electricity tariff, effective from 1 July 2024, has raised widespread concern among residents and advocacy groups alike.

“OUTA believes this charge will have significant financial repercussions on our communities, especially those who are most vulnerable. It must be scrapped,” says Julius Kleynhans, the Executive Manager for Local Government at OUTA.

The introduction of this service charge places an additional financial burden on households already grappling with the high cost of living. “For many residents, particularly low-income families who rely on prepaid meters to manage their electricity usage, this extra R230 a month is an insurmountable expense. It effectively penalises these households for their efforts to control and reduce their electricity consumption, undermining the principles of fairness and equity,” says Kleynhans.

The City’s poor communication and public engagement on this matter raises serious concern.

“While the City may have the executive powers to apply service charges, this R200 fixed service charge on prepaid was poorly publicised, badly implemented and pushed through with little to no consideration of the consequences,” says Julia Fish, Manager of JoburgCAN, which is an initiative of OUTA.

OUTA, through its JoburgCAN initiative, challenged the new service charge in the City’s Integrated Development Plan and budget public participation processes but, while the City reduced the planned charge, it refused to scrap it. 

OUTA has previously challenged the City on its previous attempts over the years to add this surcharge, as well as other irrational levies and charges (see here).

OUTA believes that it is crucial that the City applies reasonable tariffs whilst it ensures that it runs cost effectively. It cannot pass costs on to consumers due to its own inefficiencies it consistently fails to address, such as inadequate debt collection of conventional electricity tariffs and high electricity losses. 

Fish indicated that the City depends on its indigent register to apply its exemption policy to prepaid users and that there is reason to believe that this register is significantly outdated and a lot of households which would be entitled to this subsidy are not registered.

“Despite multiple requests for information on the number of households on the City’s indigent register and therefore exempt from the fee, the City has not responded. In reality, the service charge will result in an above 100% increase in electricity costs for low consumption households while tokens do not include vital information such as how much money was allocated to the charge, to VAT and to actual electricity units. The lack of transparency does not meet mandatory regulation compliance,” says Fish.

The practical repercussions of this service charge on poor communities are profound:

Increased financial strain: Many low-income families are already living hand-to-mouth. The additional R230 charge, inclusive of VAT, will force them to make tough choices between essential needs like food, healthcare, and electricity. This could lead to a significant decrease in their quality of life and well-being.

Higher risk of electricity disconnections: As households struggle to afford the new charge, we can expect a rise in electricity poverty. This will leave many families without power, impacting their ability to cook, heat their homes, and provide a safe environment for their children.

Encouraging illegal connections: The service charge might drive some residents to seek illegal electricity connections as a desperate measure to avoid the additional costs. This not only poses safety risks but also exacerbates the problem of non-payment and revenue losses for City Power.

Deepening inequality: The service charge disproportionately affects the poorest members of our society, deepening the divide between wealthy and impoverished communities. This move contradicts the City’s claimed commitment to social justice and equitable development.

Civil unrest: The levy risks creating unrest amongst communities due to social pressures which can result in rioting and protest action. Businesses who sell prepaid electricity tokens risk being vandalised or confronted by consumers due to the lack of public awareness and the lack of explanation or consideration by the City with regards to this service charge.

Unclear tariffs: The City’s final tariff document (see here) makes it clear that the Prepaid High Usage tariff charges customers more per kilowatt hour than customers on post-paid (conventional) meters, which was presumably designed to cover the lack of a service charge. A household on the Prepaid Low Usage presumably registered indigents, although the City tariffs do not explain this. 

“While the City claims the process to approve this monthly service charge was completed and consultations yielded no comments, the public awareness process and education of how the charge will be implemented were seriously lacking. OUTA and JoburgCAN attended the public hearings on the tariff increases and none of the presentations contained information on the fee. When confronted by public comments on the written draft tariffs, the fee was reduced from over R500 to the current R200. We approached City Power, City of Joburg Finance and national energy regulator Nersa for clarity on how the charge will be implemented and communicated, but to date they have not commented,” says Fish.

“While we understand the challenges City Power faces in maintaining and upgrading the electricity infrastructure and addressing revenue shortfalls, we believe there are alternative measures that can achieve these goals without placing undue stress on residents. The service charges applied to post-paid customers are a heavy burden on households but should not be used to justify attaching charges to prepaid electricity. Prepaid electricity by definition secures network availability by paying for consumption in advance and reducing the risk of bad debt on the City. When the City lowered the draft proposed tariff increase following the public consultation period, there was no change in the income or maintenance allocations in the budget. This income is not listed in the 2024/25 budget, has not been allocated and shows the City lacks meaningful oversight into what the actual costs of service for electricity are. This is reckless uncontrolled fiscal policy,” says Fish. 

OUTA and JoburgCAN acknowledge the financial challenges faced by City Power, however we strongly urge the City of Johannesburg to reconsider the prepaid service charge  and explore alternative strategies that do not disproportionately impact vulnerable communities. Together, we can find solutions that ensure a sustainable, equitable, and prosperous future for all residents.

Issued by Julius Kleynhans, OUTA Executive Manager: Local Government, 3 July 2024