(Corrects first bullet point to below 16 pct)
* Granted hikes below the 16 pct increases requested by
* Consumers, industry welcome the lower-than-expected hike
By Agnieszka Flak
PRETORIA, Feb 28 South Africa's energy regulator
on Thursday granted power utility Eskom an average 8 percent
annual increase in rates over five years, a move that will bring
some relief to households and industry as it was half of what
the utility was seeking.
Tariff hikes in recent years have far exceeded inflation and
so the utility's application for a 16 percent annual increase
over five years had triggered protests by industry, unions and
ordinary South Africans who have felt squeezed.
The final rates charged for energy-intensive industries such
as mining must still be set but they are topically about 20
percent higher than the wider consumer rates and given the
less-than-anticipated hikes, they will also be lower than
"We are pleasantly surprised. One must, however, keep in
mind that Eskom will now set increases for energy-intensive
users," said Dick Kruger, deputy head of technoeconomics at
South Africa's Chamber of Mines.
The regulator said its decision was made against the
backdrop of the continuing global recession and already existing
pressures on consumers and industry.
The-far-smaller than expected hikes will ease pressure on
consumers and dampen inflation in Africa's largest economy but
raise questions about Eskom's ability to fund the building of
new power plants needed to plug a gap between rising demand and
"This is bad news for Eskom's balance sheet," said Peter
Attard Montalto, emerging markets economist at Nomura in London.
"The government is asking Eskom to accelerate its
infrastructure programme and take the bulk of that programme on
its shoulders whilst not allowing it to raise funds through
user-pay-principle to fund it," he said.
Eskom's other options may now include taking on more debt,
perhaps through further bond issuance, while analysts say the
state could also raise cash through the sale of assets.
"If we are to believe Eskom that 16 percent was barely
enough, could this mean we may look at the option of selling
some state-owned assets to help fund future expansion?," said
George Glynos, managing director of financial consultancy ETM.
Eskom spokeswoman Hilary Joffe said the decision presented
the utility with a "challenge".
South Africa's economy for decades was powered by some of
the lowest electricity rates in the world but that party ended a
few years ago as Eskom began to scramble to keep the lights on.
Power cuts in 2008 hit mining output in the world's top
platinum producer and cost the economy billions of dollars.
The mining sector has been especially hard hit at a time
when other costs such as labour have been steeply rising.
Eskom is in a race against the clock and construction of its
new Medupi plant, which is supposed to start generating power
this year, has been halted for several weeks because of violent
(Additional reporting by Olivia Kumwenda and Sherilee Lakmidas;
Writing by Ed Stoddard, editing by William Hardy)