Nersa Raises Tariffs, Adding Financial Strain on South Africans

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JIMMY MOYAHA: The National Energy Regulator of South Africa (Nersa) has disclosed that, in response to a R54 billion oversight that has inflicted considerable strain on South Africans, electricity tariffs will rise by 8.8% over the coming two years.

In contrast, we had previously projected a 5.4% increase for 2026/2027 and a 6.2% increase for 2027/2028. Those figures have now been adjusted to around 8.7% and 8.8% respectively.

To explore this issue further, I have our resident specialist, independent energy analyst Tshepo Kgadima, with us to shed light on the implications. Mr. Kgadima, it’s great to have you on the program, even when discussing such difficult topics that affect consumers.

Are you taken aback by this development? We’ve examined the initial miscalculation and its future consequences, and it seems we now have some clarity—and it’s not encouraging.

TSHEPHO KGADIMA: Good evening to you and the listeners of SAfm and Moneyweb.

There are no surprises here; it’s evident that Eskom has employed a ‘shoot for the stars’ approach, and their results corroborate this.

Initially, they sought a R107 billion tariff hike but settled for R54 billion. Judge Swanepoel determined they did not engage in public consultation, compelling them to amend that.

Nonetheless, Nersa has practically undermined the process, resulting in consumers losing R700 million compared to the original so-called out-of-court settlement, as the multi-year pricing methodology lacks scientific basis.

It relies more on assumptions, leading Eskom—if they genuinely believed the need for R107 billion to sustain operations—to accept the R54 billion increase, which has now escalated to R54.7 billion.

What are the implications of these actions?

This scenario highlights Nersa’s ineptitude, which is likely to inflict considerable economic harm on our nation.

Your previous guest likely resonated with this view.

Furthermore, Eskom has recently agreed to the minister’s proposal for concessionary pricing for energy-intensive industries, notably the ferrochrome and ferro-manganese smelters, reducing their tariff to 87 cents per kWh.

They plan to further cut it to between 65 and 67 cents—a tariff currently available to aluminium smelters under ‘negotiated pricing agreements’ for just one year.

Additionally, I have consistently believed that the average cost of electricity generation from baseload sources is around 32 cents, which corresponds with the current exchange rates.

Thus, it is practical for Eskom to set a standard tariff, and the 87 cents appears to be the rate they have settled on.

This rate would keep energy-intensive users operational while also fulfilling the constitutional directive ensuring that a state-owned entity like Eskom does not infringe on provisions meant for non-discriminatory electricity access, specifically sections 217 and 54 of the Public Finance Management Act.

They must ensure electricity is accessible at the lowest possible cost, achievable through the uniform tariff of 87 cents already provided to corporate clients. This strategy is crucial for maintaining our economy’s competitiveness and growth, ultimately leading to job creation.

JIMMY MOYAHA: Before we conclude, let’s touch on consumer affordability. We’ve broached the notion that simple tariff increases are not sustainable long-term solutions.

Considering Eskom’s dwindling demand and rising tariffs, when does financial viability become a critical issue?

Simply increasing prices does not guarantee higher revenue if the consumer base keeps diminishing.

TSHEPHO KGADIMA: The auditors at Eskom have raised serious concerns about its viability and long-term sustainability.

I align with the auditors; the data indicates a substantial increase in customer defaults, especially among municipal clients.

Additionally, we’re observing the shutdown of energy-intensive industries, with no emerging sectors that demand substantial energy, like AI and cryptocurrency mining, which rely on data centers, thus raising energy consumption.

To be clear, Eskom claims to maintain 13,000 MW in cold reserve—comparable to the output of nearly three Medupi or Kusile power stations.

This situation primarily stems from soaring costs—energy-intensive users have experienced cost increases of eightfold since 2008, with electricity currently constituting 40% of their operational expenses.

As such, we are witnessing unprecedented exits from the grid by both commercial and residential electricity users, alongside defaults from municipal customers.

Given this context, Eskom cannot sustain its current operations.

What astounds me is how the Eskom board and management persist in enacting policies that jeopardize the organization, such as the unnecessary 14,000 km transmission grid expansion projected to cost R440 billion, aside from potential cost overruns that might double this amount.

It’s troubling that they continue to procure energy excessively while burning diesel—despite having 13,000 MW in cold reserves.

They recently asserted spending R4.1 billion less than the previous year during this period; however, I maintain that they shouldn’t have burned even a single liter of diesel for electricity production.

Moreover, the ongoing dependence on intermittent energy sources is unwarranted.

Additionally, the inefficiencies have led to over R105 billion in fruitless expenditures. This situation concerns the cabinet and the president, who seem uninformed about the severe repercussions for the economy and ordinary citizens.

Many individuals are struggling to either keep warm in the winter or cool in the summer as electricity costs have soared. Consequently, Eskom is contravening various rights enshrined in our Constitution.

This is a crisis that requires immediate action.

We can only hope for increased awareness regarding this matter. Neither civil society nor organized business is pursuing legal action; however, if they were to challenge the courts for a standardized tariff of 87 cents—given that Eskom has acknowledged its capability to supply all South Africans at that rate—there would be no reasonable justification against it.

It is crucial for civil society and the organized business sector to take a stand because our politicians have failed us, Nersa has let us down, and those at the helm of Eskom are equally culpable—much to the detriment of our economy.

JIMMY MOYAHA: This is detrimental to consumers as well.

We will closely watch this situation as we await any announcements from the president during the forthcoming State of the Nation Address later this week.

We wrap up our discussion here. Thank you to independent energy analyst Tshepo Kgadima for sharing his insights on Nersa’s confirmation of increased tariffs.

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