The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has warned that any further electricity tariff hikes will scupper any hope of a meaningful business recovery in a sector that has over the past few years struggled amid rising power costs, erratic supply, rising imports and subdued demand.
Commenting after Seifsa’s presentation to the National Energy Regulator of South Africa (Nersa) on Eskom’s Multi-Year Price Determination Regulatory Clearing Account (RCA) for 2014-2015, 2015-2016 and 2016-2017, the organisation’s chief economist, Chifipa Mhango, said in 2019 alone the Metals and Engineering (M&E) industry had spent a total of R11.7 billion in electricity costs. Although the level of impact varied across sub-sectors, he said federation had observed a huge impact on basic precious and non-ferrous metals, with that sub-sector having a significant share of electricity costs in its cost structure.
This rise, he said, could potentially be higher, following the Pretoria High Court’s decision to set aside Nersa’s decision to deduct the government’s R69bn equity injection received over three years from allowable revenue for 2019/20, 2020/21 and 2021/22.
“Local companies in the M&E sector will have to absorb additional shock in the form of an increased electricity price of at least 10%,” Mhango said. “We remain hopeful that Nersa will be granted leave to appeal that high court decision as any additional cost to the already high cost of business in the M&E industry will limit the sector’s economic recovery,” he said.
And while the organisation understood that the multi-year application was intended to provide price certainty to customers and investors, enabling them to plan ahead, he added that it took a dim view of repeated, costly RCA applications in a stagnant economy. “Any increases resulting from such applications are bound to compound business and investment uncertainty.”
