Eskom has this week asked Nersa to increase tariffs by 15% annually for three years.
What happens to Eskom and our power supply if Nersa turns down the request, and what are the implications if they are allowed to hike tariffs?
Chief economist at Citadel, Maarten Ackerman, looks at what would happen to our economy if the request is denied or granted.
Eskom is obviously not viable going forth from a financial point of view in terms of running at those debt levels. It is certainly not sustainable and this is as a result of mismanagement for a number of years.— Maarten Ackerman, Citadel chief economist
They are well aware that they need to cut a number of head-spend to reduce the wage bill and probably manage their debt levels more efficiently going forward.— Maarten Ackerman, Citadel chief economist
There is a financial concern on the one hand that government needs to address and it is also a hurdle to bring in private partners because no one wants to take over their debts.— Maarten Ackerman, Chief economist at Citadel
Ackerman says that it is unfair that Eskom is asking consumers and taxpayers to pick up the additional costs for mismanagement of the past ten years.
He says for businesses that are coming in now, it is improving because they are exploring how to stay off the grid and use alternatives. But consumers seem to be stuck with Eskom, he adds.
90% of consumers still rely on Eskom, so that will hurt their pockets and the consumer is already under severe pressure.— Maarten Ackerman, Citadel chief economist
In addition, Ackerman says the dilemma with Eskom will result if the power utility is not granted the increase, arguing then there is a real risk that Eskom will get to point where it cannot service its debt.
And if the government decides to back Eskom, it might result in the country being further downgraded, which means the price of capital will go up for everybody in the country, he concludes.
To hear the rest of the conversation, listen below: