Dismantle Eskom's monopoly to prevent further job losses
After having announced a 60% increase in profit for the year ended March 2012 (R13.2 billion), Eskom is reportedly requesting an annual electricity price hike of 14.6% for the next five years from the national energy regulator (NERSA). This attempt to raise R1 trillion over the next five years to fund capital expansion projects is both untenable and unsustainable (see report). More than anything, it is a reflection of a monopoly whose power simply has to be dismantled.
Capital expenditure should not be financed by consumers whose pockets are already stretched. The DA has repeatedly advocated alternative financing models, and we strongly call on NERSA to reject Eskom's latest proposals. Frankly, we are surprised that such proposals have been made in light of Energy Minister Dipuo Peters' previous assurances that further price hikes in the next round of multi-year-price-determination (MYPD) negotiations would be unlikely.
I will today be writing to the Competition Commission to request that it examines the case for splitting Eskom's electricity generation and distribution components, allowing them to own only the former and selling off the latter. This would greatly reduce their monopoly and improve competition in the energy sector.
The proposed 14.6% annual price-hikes are triple the rate of inflation that the Reserve Bank works hard to contain. It is monopoly power that gives Eskom the ability to even request something that could be so dangerous to the health of our economy. Electricity is both a critical input to business productivity and a large component of what ordinary South Africans spend their money on. On the back of 24.8%, 25.2% and 16.09% increases over the last three years, the time is surely ripe for intervention to remove Eskom's monopoly power.
These price hikes, if granted, will contribute to further contraction of our manufacturing and mining sectors, leading to extensive job losses. The increases will also contribute to the cost base of small businesses, who are a major employer already facing daunting obstacles to doing business. If government is serious about job creation, it should do all it can to ease the cost burden on these businesses.
Forcing consumers to pay for capital expansion to create greater electricity supply is tantamount to extortion. Growing the available electricity supply would be far more efficiently attained by democratising access to the distribution grid. Bringing independent power producers into the picture only at Eskom's discretion is simply further evidence of a monolith whose era must come to an end.
Statement issued by David Ross MP, DA Shadow Deputy Minister of Energy, July 16 2012
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