Bloomberg News

South Africa Worried About Power Costs as Increases Studied

February 21, 2012

(Updates with minister’s comment in second paragraph.)

Feb. 21 (Bloomberg) -- South Africa’s government said it’s concerned power costs are hurting household and industrial users as the regulator studies raising prices further amid stoppages by smelters to curb demand on an overburdened electricity grid.

“Government understands the need for the separation of our role as a policy maker from that of the independent regulator but we’re worried about the cost of power generation in this country and the cost at which it’s getting to the end user,” Energy Minister Dipuo Peters said in a speech in Johannesburg.

The National Energy Regulator of South Africa will this year decide on tariff increases for state power producer Eskom Holdings SOC Ltd. from 2013 to 2016. Gains exceeded inflation in the past three years to help fund 500 billion rand ($65 billion) of expansion needed to prevent a repeat of power cuts in 2008.

The government understands higher tariffs are necessary to fund growth, and industry will subsidize households to “cushion the poor against these rising costs,” she said today. At the same time, the nation needs to curb business costs, Peters said.

Eskom, supplier of about 95 percent of electricity in South Africa, is building power stations as it tries to avoid a repeat of a shortage that halted mines in 2008. This year, Xstrata Plc and BHP Billiton Ltd.’s Samancor unit has shut furnaces in the country to curb electricity use and help stabilize the grid.

Eskom, whose biggest customers include Anglo American Plc and AngloGold Ashanti Ltd., was awarded tariff increases of 27 percent last year, 25 percent in 2010 and 31 percent in 2009, after saying prior increases lagged behind generating costs.

“Energy efficiency is our best hope in the short term to balance supply and demand,” Peters said. Municipalities should be “encouraged to get old power stations working again” and be refunded for lost revenue from electricity savings, she said.

A committee will “very soon” give feedback to Cabinet on the 9,600-megawatt nuclear build program, with a decision due this year and the first plant operational by 2024, she said.

--Editors: Tony Barrett, Alex Devine

To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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