NUMSA presentation on Eskoms MultiYear Price Determination 201314

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The Impact of Electricity Pricing on Households and Businesses in the North West ” Presented by: 23 January 2013

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” BACKGROUND • Demand for electricity increased with the commencement of the electrification programme in the early 1990 s. • In the mid-1990 s and early 2000 s there were calls for further investment in electricity capacity in order to meet the increasing demand. • However decisions on such investments were not made. • Therefore in 2007/2008, the country was confronted with an electricity crisis which resulted in rolling blackouts. • As a result of these blackouts Eskom was compelled to embark on a costly capacity expansion programme.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” BACKGROUND THE UNION’S POSITION • Eskom is an integral part of the South African economy. • We acknowledge that Eskom’s capacity expansion programme is essential. • We further recognize that some of the costs of Eskom’s capacity expansion programme must be funded by users. • Citizens, the poor in particular and local industry cannot be punished with outrageous hikes to the point of deepening unemployment, poverty and inequality as a result of inaction or wrong policy choices by political elites.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” WHAT ESKOM IS ASKING FOR IN THE MYPD 3 APPLICATION • Eskom is asking to extend the multi-year price determination period to five years from the current three year period. • Eskom is asking for an average 16% increase per annual for a five year period in order to fund a R 1. 09 trillion revenue requirement.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE UNION’S POSITION ON THE REVENUE REQUIREMENT • The Electricity Regulation Act (2006) and Electricity Pricing Policy (2008) allow Eskom to recover its costs. • HOWEVER, these costs must be efficiently and prudently incurred. • NUMSA believes that the R 1. 09 trillion revenue requirement includes unnecessary costs. • Specifically, we are of the view that the return on assets Eskom is demanding is not justified. • At the end of the MYPD 3 period, Eskom will have accumulated R 46 billion for its shareholder, our government, at the cost of South Africans.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE UNION’S POSITION ON THE REVENUE REQUIREMENT • NUMSA therefore calls on NERSA to scrutinise the section that deals with returns in the Eskom application and make a judgement on whether the equity component of R 46 -billion is justifiable. • As stated in the Electricity Pricing Policy (2008), financial viability is not the only factor to be considered when deciding on tariffs. A balance needs to be sought between sustainability of the sector, social equity and economic growth.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE IMPACT OF THE PROPOSED TARIFF INCREASES ON THE POOR LESS JOBS 16% ELECTRICITY TARIFF INCREASES RISING HOUSEHOLD ELECTRICTY COSTS RISING INDIRECT COSTS i. e - food costs

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE IMPACT OF THE PROPOSED TARIFF INCREASES ON HOUSEHOLD ELECTRICITY COSTS Percentage contribution of household electricity expenditure to total household expenditure by expenditure deciles 5 4. 5 Percentage % 4 3. 5 3 2. 5 2005/2006 2 2010/2011 1. 5 1 0. 5 0 Lower 2 3 4 5 6 Expenditure Decile 7 8 9 Upper

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” NORTH WEST – SOME STATISTICS • Population of 3, 509 million • Over 20% of the population lives in informal dwellings, well above the country average of 14% • 84% of the population use electricity for lighting • Only 33% of the population aged 20 and older have passed matric, again well under the country average of 41% • Average income is R 98 903 per year, yet again lower than the country average of R 119 542 per year • Only the Eastern Cape, Free State and Limpopo have lower income levels • Clear from these statistics that the North West is an economically depressed province with high levels of poverty

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE IMPACT OF THE PROPOSED TARIFF INCREASES ON EMPLOYMENT IN THE NORTH WEST • Eskom admits that the mining and manufacturing industries will be hardest hit by these increases. • Mining is the backbone of economic activity in many towns in the North West. • Currently, mining sector, specifically platinum mining sector is in crisis mode -14 000 jobs at stake at Amplats • Electricity tariff increases will only exacerbate the crisis, leading to potentially more job losses, especially among unskilled. • Devastating effects on the livelihoods of the people of the North West

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE IMPACT OF THE PROPOSED TARIFF INCREASES ON HOUSEHOLDS, ESPECIALLY THE POOR • Households electricity price increases will be far above inflation. • For the lowest usage residential customers (the Homelight 20 A customers), the proposed increases in electricity prices for years 2 to 5 will be 9%. • Households will also have to deal with the indirect impact of the electricity price increases through increased costs of consumer goods.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE IMPACT OF PREVIOUS TARIFF INCREASES ON HOUSEHOLDS IN THE NORTH WEST • Households electricity price increases in the North West have been far above inflation • In 2005/06 households spent on average R 94 every month on electricity • This increased to R 166 per month by 2010/11 • This represents a jump of 72% in five years, or an average increase of 14% every year

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE IMPACT OF THE PROPOSED TARIFF INCREASES ON OTHER HOUSEHOLD COSTS • Effect on indirect costs: • The proposed electricity tariff increases will have a significant impact on consumer goods as businesses pass through the costs of higher electricity costs. • Consumer goods such as food will experience significant price increases. This will be particularly devastating for the poor who spend over 30% of their income on food.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” CONCLUSION • The effect of approving the current tariff proposals will be devastating for the country. • NERSA must reject Eskom’s MYPD 3 application for 16% average tariff increases. • NERSA must reject Eskom’s application to extend the multi-year price determination period to five years instead of the current three years.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” THE UNION’S PROPOSALS 1. NERSA must grant Eskom tariff increases that match the inflation rate. 2. Over the next few years, there be a thorough review of the country’s electricity pricing policy with the aim of replacing the current practice of short-term multi-year price determinations with a 20 -year electricity price path and model. The year 2016/17 should be targeted for the phasing in of a negotiated and agreed longterm electricity price path and model.

NUMSA presentation on Eskom’s Multi-Year Price Determination 2013/14 -2017/18 (MYPD 3) “The impact of electricity pricing on households and businesses in the North West” The End!