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Businesses warn of impact of Eskom tariff hike request

| Economic factors

Business is no longer able to absorb further electricity tariff hikes, particularly given the impact on an already weak South African economy, Virgin Active SA told the National Energy Regulator of SA (Nersa).

"A further tariff increase has a massive compounding effect and is baked into the base forever. Compound effects of previous years' increases should be more than sufficient for Eskom," the company said at the public hearings of Eskom's application to Nersa for a R22.8bn adjustment for its 2013/2014 financial year. It would mean a 16% tariff hike for consumers.

"Allowing Eskom’s proposed increases has the potential to perpetuate the poor management and planning issues at Eskom. Tariffs are easily used as a convenient 'release valve' rather than Eskom being forced to find more innovative ways to address their issues."

In the absence of a competitive market for electricity supply in South Africa, Nersa is obliged to play the very important role of protecting the consumer from Eskom merely increasing prices, according to Virgin Active SA.

The fitness group said on Monday it is opposed to Nersa allowing Eskom to recover an additional R22.8bn through an RCA (Regulatory Clearing Account) application.

Virgin Active SA has 124 clubs in Southern Africa, supports about 13 500 employees and contractors and has more than 730 000 members.

"Our electricity bill has risen from R34m in 2007 to R170m in 2015, more than four times the inflation rate. This has resulted in our electricity cost as a percentage of revenue increasing from 2.8% to 4.9%," the company said in a presentation to Nersa during the public hearings of Eskom's RCA application.

"Capital investment and best practice efficiencies have allowed us to save an average 4.5% per year in consumption, but still meant that we have had to pass a portion of the growing electrical cost on to our members."

The reasons advanced by Eskom for the R22.8bn adjustment, includes, a R11.7bn revenue shorfall and R14.2bn of additional primary energy spend. In Virgin Active SA's opinion these reasons do not warrant a recovery through the RCA or tariff increases.

At the public hearings Roger Pitot of the Authority of the SA Automotive Components Industry (Naacam) told Nersa that its 120 members employ over 50 000 people and have a combined turnover of R55bn.

According to Pitot, granting Eskom the R22.8bn adjustment would in effect mean an increase of more than 25% for tariff based customers during the 201/2014 financial year.

"Based on Eskom's rationale similar 'corrections' can now be expected in future," cautioned Pitot.

"Does Eskom realise the consequences? Users and particularly business and industry will further reduce their usage of power as encouraged by Eskom and as prices escalate, creating a vicious circle of lower revenue, surplus capacity and Eskom requests for price increases, which is certain to continue."

In his view this will lead to a further reduction of investment and employment in the industry.

"Eskom simply does not support an industry which increasingly needs to be globally competitive," said Pitot.

The automotive component industry competes globally against many low-cost countries and vehicle manufacturers refuse to pay any price increases as they can import components as an alternative.

"Electricity supply has to be competitive as it is an essential input cost for this industry - between 5% and 20% of total input cost," he said.

"Eskom's RCA is unaffordable and is creating investment uncertainty, particularly for the energy intensive companies."

In his view Eskom is "clearly not efficient".

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