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Johannesburg - Massive job losses await South Africa if Eskom’s requested tariff hike is granted, the National Energy Regulator of South Africa (Nersa) has heard at hearings.
But if Eskom's financial woes are not fixed, South Africa's economy as a whole could go down with the power utility, presenters said.
Nersa is currently holding hearings in Johannesburg in the last leg of a month-long roadshow across the country, to determine whether Eskom's application for a 19.9% increase is justified.
On Friday the request was met with large-scale opposition. Civil rights body the Organisation Undoing Tax Abuse (OUTA) said jobs will be lost and the best deal for South Africa would be if those jobs were cut at Eskom.
OUTA chair Wayne Duvenage said 15 258 jobs, or a third of Eskom’s workforce, will have to be shed to save the organisation from ruin. He estimated that a R10bn saving could be achieved through that.
Around 5 000 jobs could be cut per year over the next three years to get the state utility back on track.
Chamber of Mines chief economist Henk Langenhoven told the hearing that should Eskom’s request be granted, it could result in a continued vicious downward spiral for South Africa of higher electricity prices, lower growth and less electricity consumption. Up to 600 000 jobs could be lost.
If unchecked, he said, Eskom will be a key contributor to no growth for South Africa and credit downgrades.
Dire situation
“The situation is dire,” Langenhoven said. He explained that the state utility is in drastic need of short-term solutions to prevent Eskom from failing, and the economy from suffering irreparable damage. But any short-term solution must be conditional on a significant structural adjustments programme, he added.
The Chamber of Mines, which represents 90% of South Africa’s miners, also felt that previous hikes have proved to be unrealistic, owing to the the South African economy using less power, lower-than-expected economic growth, and the massive overruns in construction costs at the Medupi and Kusile power stations.
The chamber is also taking Eskom’s rescue plans with a pinch of salt.
“The industry is highly sceptical of Eskom’s claims that it will deliver ‘higher efficiencies’, which it defines as lowering its headcount, keeping primary energy costs down and sacrificing its desired rate of return on capital,“ Langenhoven said.
It was not impressed with Eskom’s ultimatum of either the 19.9% increase or a bailout. “Either of these options will have dire consequences.”
Effect of tariff hike
Langenhoven said the chamber believes a tariff increase will result in economic growth declining by 17%. “The cumulative opportunity cost in job losses (could be) over 600 000. For mining, the contribution to GDP will decline by between 5% and 9%,” he said.
The impact on loss-making mines will be disastrous, putting tens of thousands of jobs in jeopardy.
The chamber estimates that the proposed hike would result in a R3.21bn cost increase, which means the operations of around 66% of all gold and platinum mines would be unsustainable, and could result in about 48 000 additional job losses.
Bailout no better
A bailout is not much better. This will result in the government debt to GDP ratio rising from just over 50% now to 75% by 2021, and over 104% by 2030 - with all its consequences.
Langenhoven urged Nersa to pursue the least damaging solution to deal with Eskom’s impending cash crunch. Drastic changes are needed at Eskom, including the acceleration of the decommissioning of old, inefficient power stations and bringing Eskom’s operational cost, and primarily its inflated headcount, in line with international standards
The hearings will continue on Monday, when Eskom will deliver a final plea that includes its action plan as requested by Nersa. Thereafter Nersa will deliberate on the request.
A final ruling is expected on December 7.
