eskom load shedding

Image via Flickr: Matt Wiebe

Petrol and electricity price increases, a double whammy for South Africans

For most, the belt cannot be fastened any tighter.

eskom load shedding

Image via Flickr: Matt Wiebe

Recent petrol and electricity price increases spell disaster for South Africans and the already unsteady economy they rely on for sustenance.

South African affairs have gotten off to a shaky start in 2019. Many South Africans believed that the new year would bring with it a glimmer of hope and renewal, especially in the wake of a particularly dastardly 2018, which saw the economy take a severe battering. Rising unemployment rates, tax increases and consecutive fuel hikes dogged the consumer towards the latter half of last year – unfortunately, recent developments in the energy sector have cast an even greater shadow of the economy’s already dark prospects.

It took less than three months for reality to hit home; dreams of an easier year, at least in the financial sense, have been rudely interrupted. Isolated tariff increases on either side of the energy spectrum embattle South Africans – it’s when the price of both electricity and fuel increases, in unholy unison, that all citizens, across the wide socioeconomic gamut, feel their pockets pinch. This pinch has evolved into a choke.

Petrol price increases

South Africans were afforded some fuel price reprieves over the festive season and into the start of 2019; analysts and the general public alike knew that those heady months of petroleum pardons could not, and would not, last. In March, they were proven right.

Early estimates regarding the fuel hike didn’t appear too destructive, with reports from the Central Energy Fund (CEF) indicating a modest increase of 43 cents per litre for petrol and 60 cents per litre for diesel. Unfortunately, mid-month estimates fell flat after the international oil price wobbled, the US dollar strengthened, and the rand took a knock.

The Department of Energy recalibrated its figures and warned South Africans of much worse petrol price prospects; estimating increases of between 67 cents and 83 cents, per litre, for petroleum and between 84 cents and 96 cents per litre for diesel.

Those estimates, unfortunately, rang true. On 4 March the CEF announced that motorists would have to cough up 74 cents more per litre for their petrol. The cost of diesel, which holds particular power of the country’s means of production, rose by 93 cents per litre. Inland, the cost of petrol now stands at R14.60, with diesel at R14.00 – still a far cry from the exorbitant fuel prices which burdened motorists in 2018.

Fuel taxes add to the pain

Ever-fluctuating oil costs and rand-to-dollar exchange rates can only catch so much of the blame for the pain of rising petrol prices in South Africa. A large portion of guilt rests solely with the government and, more specifically, the embattled Road Accident Fund (RAF). The dreaded fuel tax, which already accounts for R3.37 for every litre petrol, is expected to rise along with a few other levies.

Carbon tax has also upped the ante – adding nine cents onto every litre of petrol – a portion which is expected to increase in coming months. A rise in customs and excise taxes, totalling four cents, is also expected to increase as the year progresses. It’s the RAF levy, however, which adds insult to injured motorists; accounting for R1.93 per litre of petrol purchased. For the RAF, which is bordering insolvency, it’s the sixth consecutive increase in as many years.

Still, while the prospects of rising fuel taxes have the propensity to ignite already inflamed tensions, it’s important to remember that South Africans were paying a grand-total of R17.08 per litre of petrol in November 2018. In comparison, the current price of R14.60 per litre seems comfortable.

Price of electricity increases

It’s not only the enormous electricity tariff increase recently granted to Eskom by the National Energy Regulator of South Africa (NERSA) which has South Africans fuming – it’s the fact that the power utility’s operational incompetence is being rewarded. For citizens, it’s a matter of principal.

On Thursday, NERSA approved Eskom’s request for a tariff increase to recoup it’s grievous financial losses. Revenue increases for the 3-year MYPD4 period were approved as follows:

  • 2019/2020 financial year: 9.4% increase
  • 2020/2021 financial year: 8.1% increase
  • 2021/2022 financial year: 5.2% increase

Its no secret that Eskom, the country’s most valuable and vital state owned enterprise, has failed to win the public’s trust. Unsurprising, considering that for the past few months, ‘unexpected power plant breakages’ have left South Africans in the dark.

Load shedding, as a result of corporate mismanagement and dubious maintenance programs, stands as the antithesis of service. Despite failing to secure the stability of South Africa’s power supply, Eskom feels that it is entitled to tariff increases. Exemplified by recent approvals, NERSA – the only organisation standing in the way of exorbitant electricity prices – is in agreement with Eskom. This is further bad news for South Africans.

While President Cyril Ramaphosa and his numerous task teams begin the arduous process of unbundling Eskom, in the hope that a decentralised utility will result in proficient and cost-effective production and supply of electricity, ordinary South Africans fume. Only time will test the unbundling strategy – maybe it will save Eskom from complete collapse – in the meantime, citizens are forced to cough up more cash, cash which simply doesn’t exist.

The knock-on effect

The gears of industry, ultimately the backbone of South Africa’s economy, are, quite literally, driven by electricity and fuel.

True, there are specific industries which stand to gain from the recent price increases – namely, fossil fuel extractors and suppliers, along with, ironically, renewable energy conglomerates – but, for the most part, general means of production are placed under further financial pressure. This pressure, which, plainly, diminishes profit margins, becomes the burden of ordinary South Africans. As is often the case, the poor and marginalised carry the heaviest load.

The rising price of diesel, alone, has the propensity to cripple the agricultural sector. For consumers, this spells disaster, as the price of foodstuffs inevitably rise to offset the costs carried by producers. This means that South Africans can expect to part with more money on their next trip to the supermarket.

The problem, at its core, is quite simple though – there simply isn’t enough money to go around. Commercial outlets, although forced to increase their costs, will battle to balance the financial constraints of consumers. This conundrum is amplified by Eskom’s recently approved tariff increase.

Electricity remains a necessity in almost every South African household. Barring defaulters who manage to acquire their electricity illegally – here’s looking at you Soweto – this necessity exacts a hefty and unavoidable toll on the wallets of consumers. Ultimately, there’s only so much stretching a paycheck can handle – that’s if you’re fortunate enough to be employed, a position which currently escapes 27.1% of the population.

In trying financial times, as these most certainly are, South Africans need to tighten their belts – maybe tighter than ever before. The major problem emanating from the rising cost of living, is that the tightening belt, which, for the privileged, is a tourniquet, resembles a noose for the impoverished.