South Africa’s Ramokgopa Expects State Intervention on Power Prices
(Bloomberg) -- South Africa’s government plans to intervene to keep power prices lower after the state utility asked a regulator to allow it to raise tariffs by 36%.
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Electricity Minister Kgosientsho Ramokgopa said he’s confident action will be taken before the National Energy Regulator of South Africa rules on Eskom Holdings SOC Ltd.’s application by the end of the year. By comparison, South Africa’s annual inflation rate was 4.4% in August.
“There could be a policy intervention we could make to provide some measure of relief,” Ramokgopa said at a Standard Bank Group Ltd. conference in Johannesburg on Tuesday. In addition to preserving the financial viability of Eskom, “we don’t want to undermine the ability of the economy to grow” and we don’t want to push the poor deeper into poverty, he said.
Eskom’s tariff application for its next financial year is the latest impediment to economic growth presented by South Africa’s struggles with power supply. While the rolling blackouts that hit Africa’s biggest economy intermittently since 2008 — deterring investment and forcing companies out of business — were brought to a halt about six months ago, electricity costs have risen 600% since 2006.
The government pledged a 254 billion rand ($14.7 billion) bailout for the indebted power company in February 2023. That amount was cut by 4 billion rand a year later, after Eskom failed to meet a condition attached to its debt-relief plan.
“We will provide the relief to everyone,” Ramokgopa said, without specifying what action will be taken other than saying the government could suspend certain requirements it has of Eskom. “I am confident that this is not the figure we will be seeing.”
Prices will fall as the country takes on more renewable energy as private companies build more plants, the minister said. South Africa currently relies on coal for about four-fifths of its power and Eskom has a near monopoly.
Eskom said its application was based on the costs it will incur to provide power. The utility also applied for an 11.8% increase in its 2027 financial year and 9.1% hike the following year.
City Opposition
South Africa’s second-most populous city, Cape Town, has said it will take legal action against the proposed price increases.
On July 18, shortly after the formation of the first coalition government since the 1990s, President Cyril Ramaphosa said in a speech that the government will take action to rein in rises in administered prices such as electricity.
In a wide-ranging speech, Ramokgopa said the government’s plan to incorporate reliable natural-gas supply into its energy mix has “fatal flaws” and will need to be reworked, giving little further detail.
He added that companies will need to adapt to the imposition by the European Union of a so-called carbon border adjustment mechanism, effectively a tax on goods coming into the bloc if they are produced using energy from fossil fuels.
‘Climate Ambitions’
“We are arguing that it is a trade instrument — that won’t take us very far,” he said in reference to South Africa’s opposition to the measure by one of its biggest trade partners.
The EU has climate ambitions and “we are understanding where they are coming from,” he said, adding that Eskom could sell its green energy at a premium to companies that want to avoid the charges.
Ramokgopa announced that the country is working on providing off-grid power supply to remote communities with the aim of boosting access to electricity to 100% by 2029 from about 94% now. Two pilot projects will open in the rural province of Limpopo this month, he said.
(Updates with comments on gas, carbon taxes in last six paragraphs. An earlier version corrected day of week in paragraph three)
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