UPDATE 3-SAfrica's Eskom tariff hike fuels inflation fears

(Adds Eskom, Finmin, Solidarity comments, bonds reaction)

By Paul Simao and Stella Mapenzauswa

PRETORIA, June 18 (Reuters) - South Africa's power regulator approved an additional 13.3 percent tariff rise for state-owned power firm Eskom [ESCJ.UL] on Wednesday, falling short of a requested 53-percent hike but still fuelling fears of inflation.

Analysts said the rise for the 2008/2009 financial year, which follows a previous 14.2 percent increase, could have a knock-on effect on other prices, rattle the rand currency, fail to ensure adequate power supply and limit economic growth.

Eskom is battling to meet demand in Africa's biggest economy, and provoked public anger from business, labour and the central bank when it asked for the revised tariff increase to pay for its main raw material coal and fund new power projects.

The utility had warned it could be forced into more of the blackouts seen this year if it does not get enough money.

The country's gold and platinum mines were shut for five days in January as the power crisis worsened, curbing output and sending precious metal prices soaring.

South Africa's power regulator said it projects tariff hikes of 20-25 percent over the next three years.

The National Energy Regulator of South Africa said it would allow Eskom to recover additional costs of 2.827 billion rand ($351.8 million) through the tariff hike, but South Africa's poorest power users would be exempted from the additional rise.

Analysts said the tariff increase had only solved part of the country's power problems.

"The increase provides for the electricity supplier's rising primary energy costs, mainly coal. It does not, however, allow for expansion of Eskom's capacity," Jaco Kleynhans, a spokesman for Solidarity trade union said.

Eskom had argued that revenue from its requested increase would fund a 5-year, 350 billion rand ($44 billion) programme to add new power capacity and pay steep market prices for coal.

Finance Minister Trevor Manuel told parliament in Cape Town Eskom could raise some of the required cash from the capital markets and the rest from users fees and charges.

Eskom welcomed the ruling by Nersa on smoothing out tariff increases of 20-25 percent over three years, but did not comment on whether the tariff increase was adequate.

"This announcement sets Eskom and the energy sector in general, on the path to long-term financial sustainability," Eskom's Chief Executive Jacob Maroga said in a statement.

But South Africa's government bond yields jumped on a deterioration in the inflation outlook.

INFLATION TO WORSEN

Central bank Governor Tito Mboweni said last week that anything above a six-percent tariff hike could stoke inflation. The central bank is trying to reduce inflation to within a 3-6 percent target band from the 10.4 percent reached in April.

"It will definitely have an impact on inflation," said Fanie Joubert, an economist at Efficient Group. He said the total tariff hike would add about 0.5 percentage points to inflation next month, pushing the CPIX inflation to 12 percent.

"The outlook for electricity supply going into the winter and further ahead was now uncertain," Lehman Brothers said in a note. "Investor sentiment and the rand remain vulnerable..."

Labour unions plan a national strike on July 30 to protest against job losses due to the power crisis.

"It's still far too high in our view. Our fear is that there could be job losses which we will fight strenuously," said Patrick Craven, spokesman of the COSATU labour movement.

Mines, which are still only receiving 90-95 percent supply, hampering production and putting thousands of jobs at risk, said the tariff increase would push up average tariffs by 34.2 percent.

"We estimate an extra 1.6 billion rand in costs in the mining sector, and deeper mines will feel the hit most," said Roger Baxter, an economist at the Chamber of Mines, which represents firms such as AngloGold Ashanti (ANGJ.J), Gold Fields (GFIJ.J), Harmony (HARJ.J) and Anglo Platinum (AMSJ.J). (Additional reporting by Phakamisa Ndzamela, Gugulakhe Lourie, and Wendell Roelf; Writing by James Macharia)