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Monday, March 30, 2015

Unpublished Letter: 20th March 2015: Eskom's possible 24% Electricity Price increase

On March 19, Executive Deputy Mayor and Financial Director in the City of Cape Town, Mr Neilson, announced that Eskom wants a 22.27 percent increase instead of the currently approved 12.69 percent increase. The City of Cape Town is blaming Eskom for the delay, but the City have already delayed their usual budget announcement by about a month as they have been waiting for NERSA to confirm this higher increase.

The City blaming NERSA for the delay is hypocritical. What isn't hypocritical is the huge increase that consumers will get, not just in electricity prices, but as electricity is in everything, everything is going to increase, including the cost of petrol and diesel which have big electricity components. Considering massive wage increases demanded by union members, plus this electricity increase, one can expect car manufacturers and mines to close down due to this increase and the South African economy is going to suffer, as if a "junk bond" (non-investment grade debt) financial status we also earned on March 19 isn't enough!

The reason the City delayed their budget announcement was because they've been expecting this additional increase! Rumours have been circulating for some time of a proposed 24% increase. NERSA's actual suggested increase is 22.27 percent and historically the City has increased tariffs by more than Eskom, so if Eskom put the price up by 22.27 percent, then we can expect a City increase of more than 22.27 percent.

Note that the after years of very high price increases NERSA moderated Eskom's requests for this year and next to eight percent, but Eskom has already managed to push the increase to 12.69 percent and now they appear to be getting towards 22.27 percent. One should note that Eskom's 22.27 percent increase is close to 17 cents per kWh, so the City only needs to increase their electricity tariffs by about 10 percent to recover this increase, and if they add inflation, then we should expect an increase of about 15 percent!

But the City have never chosen to increase tariffs by the cents amount Eskom have given them, and rather increased tariffs by the same or a higher percentage than Eskom have been given. This is grossly unfair.

For example, if Eskom charges the City 50 cents per kWh and the City charges homeowners R1.70, then if Eskom puts the price up to 60 cents, which is a 20 percent increase, the City could increase the price to R1.80, which is a 5.9 percent increase, rather than to R2.04, which is a 20 percent increase. Taking this into account, the City could "give back" to its homeowners and limit the increase to 11 percent whatever happens, and the City will still not lose any money when looking at the increases the City have already earned over the past seven years. Many more people would come to live in Cape Town, a City which would have relatively cheaper electricity prices than the rest of the country.

The benefit of these increases is that homeowners, including ones in townships, will shortly, with the right financial arrangements, be able to make their own electricity cheaper than they can buy it, including using batteries, and therefore a sea-change will be upon us as everyone gets into the electricity generation and sharing game.

South Africans, inventors and entrepreneurs, will force the Eskom monopoly to come to end, and a true competitive environment will finally emerge.

Yours faithfully,
David Lipschitz
​Portfolio Head of Energy on the Greater Cape Town Civic Alliance (GCTCA) Exco.​


  1. A summary:

    If one buys something for 57 cents and sells it for R1.87 and one's supplier puts up the price by 25 percent to 71 cents, should one put up one's price to R2.34 or to R2.01?

    71 cents - 57 cents is 14 cents.

    R2.01 - R1.87 is 14 cents, but the percentage increase is 7.5 percent instead of 25 percent.

    This is the question that the City of Cape Town needs to ask itself as it continues to put up its electricity tariffs at the same percentage as Eskom.

  2. This letter was subsequently published in the Cape Times.

  3. This letter was subsequently published in the Cape Times.