Submission to the Nersa hearings on Eskom’s application to increase electricity prices

23 May 2008

Eskom’s proposed 60% price hike will deny consumers their right to affordable electricity – a mainstay of government efforts to alleviate poverty and raise quality of life.

The democratic government has brought with it the promise of upliftment, with a focus on the poor, marginalised and dispossessed. While progress on this front has been slow and uncertain, we have seen a massive roll-out of electricity to address the fact that only 34% of South Africans had access to electricity in their homes in 1994. Today, about three quarters of our country’s population can enjoy the benefits of electricity.

So consumers have been dismayed to see the way that Eskom is planning to manage access to this vital resource. While Eskom, on the instruction of government, has spent the last 15 years making electricity available to the poor, they now plan to make it unaffordable for that very same group.

Affordability

Consumers have a right to basic services at a fair price, and fairness is usually only established when there is competition. Where there is no competition, we need accountability – and consumers have seen precious little of that from Eskom recently.

Eskom is state-owned, but it is still a business – and should act like one. This means managing its finance and is operations in a manner that the market – consumers and businesses – can live with and respect. Every other business in the country – even most of the parastatals – are required to source huge amounts of finance to deliver on their offerings or their mandates. They find the financial resources first, invest it in the necessary infrastructure, and base the whole process on a model that recovers costs from various sources over a period of time – based on what is fair and affordable.

Inflation targeting

The Reserve Bank pursues the principle of inflation targeting, because it aims to protect the spending power of consumers – especially the poor. But we can’t have inflation targeting for consumers only. Everyone has to share in the pain.

What Eskom’s proposed price hike will do, according to the Reserve Bank governor, is to ensure ourselves a crippling, target-busting inflation rate for the foreseeable future. The result? Consumers and other users continue to bank-roll a non-performing monopoly organisation, and in the process are further punished by more interest rate hikes. It is unacceptable to consider such a way forward for the country’s consumers.

In good faith?

Consumers country-wide have been astonished and appalled by how liberally Eskom has been handing out our hard-earned payments in the form of bonuses to executives; and, dare we say, the callous manner in which these bonuses have been accepted by those in positions of authority at Eskom. They must know, in their heart of hearts, that they do not deserve them, given the precarious state of the electricity system that has been trustingly placed in their hands to nurture, protect and develop on behalf of the nation.

While Eskom has been hiking rates at above-inflation levels, they were happy to take consumers’ money, announce profitable results, and award themselves handsome incentive payouts. But as soon as their lack of management and planning is uncovered, they start demanding cut-backs from energy users – even going so far as to imply that load-shedding is our fault, because we are using too much electricity!

Despite the undercurrent, consumers have co-operated very well – many of them spending large amounts of money on alternative, renewable technologies that are still very expensive.

But any form of sustainable co-operation requires a relationship of good faith. And this is where any price hike (let alone a massive 50-60%) will continue to find resistance. For Eskom to pay its executives bonuses is to imply that everything is going well; in a responsible business, this means: “The customer is happy.”

To make such a claim in the current circumstances is both laughable and downright dishonest; indeed, it is the height of cynicism. To then act on that claim as if it were true, and to dish out our money to those responsible for the mess, verges on criminal behaviour.

It is asserted that these bonuses are made in terms of specific job targets and performance contracts; can Eskom really stand squarely behind its human resources practices and defend these contracts? Surely such basic flaws in the organisation’s people management processes should have been highlighted years ago – and stamped out by a vigilant board. Instead, they are applied unquestioningly – with devastating results for the unsuspecting consumer.

Pay back those bonuses

So, if the legal and institutional framework around our energy leadership is not going to ensure responsible behaviour, what is? It may be that simple ethics could be the answer – to help in some small way to mend the crisis of confidence in which Eskom finds itself.

The National Consumer Forum has therefore called upon Eskom’s incentivised executives to pay back last year’s bonuses, as a gesture of good faith – just to show that they are in fact aware that things are not right, even if we believe them that they are powerless to make a difference.

Failing this, they will continue to face public attitudes that are hardening, rather than becoming more co-operative. These attitudes reflect the opinion that Eskom officials have got us into this mess, and they must get us out of it. If they can’t, then it is the government’s duty to find a team who will – and who will do it with professionalism, commitment, compassion for the poor and respect for the consumer.

In conclusion, then, we feel that any increase granted to Eskom should be within the Reserve Bank’s inflation target range – and that this would be generous given the 14% increase already approved.

National Consumer Forum
ncf@sabs.org.za
012 428 7071

Posted in Media Statements.