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Keep electricity hikes to 10% per annum

Price hikes one of the reasons why the New Growth Path will remain a pie in the sky

The trade union UASA welcomes the decision of the Department of Energy to investigate and radically change the method used by the National Energy Regulator of SA (Nersa) to determine electricity tariffs for Eskom.

UASA agrees with the department that high costs have caused businesses to close and that it has restrained new investment in the country.

If government is at all serious about the targets of the New Growth Path, it should consider alternative methods of financing the additional supply of electricity. UASA foresees no mass job creation or job creation when companies are forced to close their doors because government makes it impossible for them to stay in business.

UASA suggests that electricity price hikes are kept to a maximum of 10% per annum. Government should rather look at long-term loans, or grant Eskom guarantees so that it can take out its own loans. Not only would this relieve the pressure on inflation, but also on retrenchments. It might also provide a stimulus for more spending in the economy which should aid production and job creation. 

The alternative could well be catastrophic results for the South African economy, employers and workers.

Since June 2008, the price of electricity increased by more than 108% (according to the seasonally adjusted producer price index calculated by the South African Reserve Bank).

This means that the cost of electricity more than doubled for producers. Put differently, if electricity costs comprised 10% of total costs of a producer in June 2010, it would now be more than 20% if all else remained constant.

This has major consequences for the South African economy and serves as another reason why the targets of the New Growth Path will remain a pie in the sky. From the production/supply side, it makes companies less competitive and forces them to consider, and indeed retrench, workers in an attempt to neutralize the impact of electricity tariff increases.

From the demand side, it reduces consumers’ spending power and actual spending at retailers, which in turn forces retailers to reduce the number of workers due to lower selling.

Against this background, the same government that implemented the hefty electricity price increases should not expect mass job creation or job creation at all. Furthermore, as the electricity price hikes will continue, no relief on the job creation front should be expected.