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Eskom’s holding us hostage – again

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The International Monetary Fund’s (IMF’s) latest annual assessment in our economy is blunt and highly critical of some economic policies, as well as the management and satisfaction of State-owned enterprises (SOEs).

The IMF wants more competition from the South African economy also in the labour market. The IMF and rating agencies in addition have long pointed to SOEs’ big impact on the economy – by creating growth bottlenecks along with insatiable require for government guarantees every time they expand capacity.

David Lipton, first deputy managing director in the IMF, speaking at Wits Business School, said: “Then there is the case of State-owned enterprises. They play an important role throughout the economy, however are full of inefficiencies, poor management, and weak balance sheets.- Moreover, in which you sector cannot enter key sectors dominated by SOEs. This only fortifies the bottlenecks in the economy.”

A full week later Eskom announced it no longer wished to buy more power from independent power producers (IPPs).

This ‘s what the IMF is worried about: a SOE making economic policy by shutting the private sector, in lieu of government.

Eskom’s power-generation woes happen to be a brake over the economy now, just as soon as they seem to be solved, it influences the economy again.

Eskom prices have driven inflation and it also won’t comprehend to dam cheaper power.

Firstly, yes IPP power is more epensive than Eskom power nowadays, but even Eskom states how the weighted expense of IPP power fell from R2.17 to R1.71 per Kwh. That is a 21% decline in just one year, while Eskom’s average cost increased by?5% to 64 cents a?kilowatt hour within the last year.

The new independent producers can be at price levels much like Eskom or simply below and prices are declining. It is this new cheaper electricity Eskom desires to stop buying.

Prices for renewables have fallen to below current Eskom levels and may in probability still decline when compared with Eskom’s own prices. The utility’s new power stations are much more expensive, according to Chris Yelland.

Eskom hasn’t been effective in keeping a lid on new build costs and calculations demonstrate that the expense of manufacturing of Medupi and Kusile might be R1.05 and R1.19 per Kwh. These calculations estimate a weighted value of capital of 8%, while Eskom and government bonds presently have yields above that level of cla.

Further cost overruns have become possible coupled with higher interest rates, and so the average expense of Medupi and Kusile could are available at a minimum of R1.30 cents a kwh (Deeper delays is likely to make only for higher prices). What? Current renewable power at half the price of future fossil fuel power?

Currently, the latest solar prices within the United Arab Emirates show costs declined to not as much as 43 cents (South African currency), or about a third of Eskom’s new power station costs. Could we ignore this price trend or will we rather risk even higher monopoly prices again?

Weaker economy because of higher electricity prices

Electricity weights over 4% during the CPI basket while Eskom could be the monopoly which controls the basic price thereof. This price has risen a great deal these days how the use of electricity declined for the extent?that the structure with the economy changed.

Excessive price increases experienced a big structural influence on the economy. Beneficiation has given approach to services while self-reliance is a major trend too.

According to Eskom, the commercial, mining and transport sectors use less electricity than only a decade ago. Yet Eskom receives a lot more revenue than before.

Electricity bills as being a number of that which you produce:

While SA uses less.

This has lead to electricity costs increasing from about 3.5% to 6.5% of the value added in manufacturing since 2006! This although industry used 12% less electricity versus 2006, while costs increased by 276%.

Despite getting off beneficiation and industry, SA manufacturing now pays more for power per unit of production.

This causes it to become tough for SA Inc to compete. Of course, this hurts growth and jobs – just what IMF has warned about.

Then, just when IPPs can compete in price, Eskom says no. This constrains growth.

Other options for finance assist the SA balance sheet

Eskom was obviously a constraint for the SA economy for pretty much several years when independent producers were welcome. The Doe established policies securing independent producers.

The IPPs also finance their own individual infrastructure, which helps cash-strapped Eskom, making?it much more curious. It can ensure less pressure on tax payers to purchase coal and nuclear infrastructure.

Government step to Eskom will probably be monitored because of the market.

Uncertainty and investment never mix well

When Eskom couldn’t deliver for any economy, the economy was instructed to adapt in the costly to jobs, growth and investment. Some estimate we lost 10% in our GDP potential.

Independent production was encouraged which concluded in substantial investments inside South African electricity sector. IPPs brought new capacity as did businesses that became self-reliant.

Electricity investment was a major driver both from IPPs and Eskom. Each of them made investment decisions using a policy.

Now Eskom would like to protect its high-cost investments on the tariff of private producers. Eskom wants the foundations to change. This sends the wrong message to investors, that invest with policy certainty.

South Africa cannot allow changes to our policy too suit one player. Designed to destroy investment.

Simply put.

The economy has been held hostage again by our monopoly electricity producer. The greater Eskom wants to do itself, greater expensive electricity becomes. It seems sensible this tends to push up inflation, cause apr increases and slow economic growth. Thus can cause more unemployment and increased poverty.

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