Electricity crisis requires a solution as ‘aggressive’ as Covid-19 response – Seifsa

The level of crisis and the threat to the economy posed by the electricity supply situation requires “a response as aggressive as the response to the Covid-19 pandemic”, says the Steel and Engineering Industries Federation of Southern Africa (Seifsa).

In a statement issued on Monday, Seifsa chief operating officer Tafadzwa Chibanguza says the federation was “gravely” disappointed with the announcement of an 18.65% increase in electricity tariffs last Thursday by the National Energy Regulator of South Africa (Nersa).

The hike is set to be implemented in April.

Timing ‘extremely unfortunate’

“While it is acknowledged that Nersa has a very difficult balancing act to manage which, amongst others, includes ensuring the sustainability of the electricity utility, the timing of the increase is extremely unfortunate,” Chibanguza notes.

“The increase is granted at a time when Eskom cannot provide sufficient electricity to its customers, a situation which is expected to continue into the foreseeable future.”

Added to that, says Chibanguza, is the already high cost of living endured by South Africans, along with the rising cost of doing business in the country.

Costs pile up

Because companies must shell out to keep the lights on during load shedding, for example with generators which can cost 3-3.5 times more per kilowatt hour – Seifsa says they’ll effectively pay much more for electricity than ‘just’ the 18.65% and 12.74% increases Nersa granted Eskom for the 2023/4 and 2024/5 financials years, respectively.

It notes that the effects of the tariff increases are significantly damaging for the metals and engineering sector value chain, which is largely composed of energy-intensive upstream industries and fewer less-energy-intensive downstream industries.

Read: If electricity generation indicates economic activity, SA has collapsed

The cost of alternative energy solutions for energy-intensive upstream industries is extremely prohibitive, given their consumption, resulting in these industries “being bound to Eskom and exposed to the punitive cost increases”.

It adds that while downstream industries can make provision for alternative energy solutions, the costs of running these alternatives are equally prohibitive.

Chibanguza says the detraction in attractiveness of investment opportunities in the country, as a result of the energy crisis, is also concerning.

As is another long-term implication for local businesses.

“Companies are sacrificing long-term capital that could otherwise be invested in expanding their operations and are spending these scarce resources in pursuit of immediate survival,” says Chibanguza.

“The long-term implications will be a continued structural decline in the performance of the metals and engineering sector, which has already been tracked at a rate of 1.6% on a compound annual basis since 2008.”

He says employment in the sector, particularly of woman and youth, has contracted at the same pace in this period.

Chibanguza says only a “clear, honest and dogmatic focus” on structural reform in the energy sector will move the country out of the current electricity crisis.

“The supply of reliable, consistent, and efficiently priced electricity is not only in the best interest of the private sector but the entire South Africa. Therefore, private sector involvement in the provision of electricity should be expedited without restriction and delay.”

Nondumiso Lehutso is a Moneyweb intern.