In an effort to address its financial woes and liquidity challenges, Eskom has been granted a 9.61% increase in the electricity tariff. This will place even more strain on an agricultural sector that is already under pressure, experts say. The new tariff granted by the National Energy Regulator of South Africa (NERSA) will take effect on 1 April 2022.
This week Eskom noted that NERSA had timeously made a revenue determination which will allow Eskom to apply the adjusted price to its customers.
The increase came just one day after the budget speech in which Minister Enoch Godongwana announced an increase in various taxes and excise such as the Health Promotion Levy that negatively affect specific commodity producers.
According to Agri SA’s chief agricultural economist Kulani Siweya these increases can only hamper the ability of the sector to recover from the shocks of the past two years.
“While the increase granted by NERSA is substantially below Eskom’s request, when this above-inflation increase is considered alongside the increased taxes, minimum wage, and the rapid increase in other agricultural input costs owing to global supply chain disruptions during Covid-19, this decision will clearly have dire consequences for farmers who are already under tremendous strain,” Siweya said.
The state-owned public utility originally proposed a 20.5% increase in December last year.
Profit margins already so thin
According to Uzair Essack, managing director of Riyp, a Western Cape-based fresh produce exporter, considering all of these costs, it has become more expense to run an agricultural business in South Africa.
“The labour, electricity, diesel, fertiliser, shipping rates and transport rates have all gone up, but consumers and retailers expect to pay similar levels to what they previously paid, importers as well.
“How do you as the agri-processor take on all these costs? Your margins are already so small and [you don’t have] the opportunity to increase your prices,” he told Food For Mzansi.
Reacting to NERSA’s decision, Calib Cassim, Eskom’s chief financial officer said the financial implications of this decision on Eskom’s long-term sustainability would need to be further understood.
“It is understood that NERSA considered the impact on consumers and the financial sustainability of Eskom as it made its decision,” Cassim said.
The Eskom Board is expected to deliberate further before deciding on how to continue to sustainably provide electricity to the extent possible in the context of this revenue decision.
Eskom said it keenly awaits the reasons for the decision that will provide further details on how the revenue determination was arrived at.
In the meantime, Agri SA said it would study the decision and approach government to find ways to relieve the cost burden on the sector. It said this was not only vital for economic growth and job creation, but also to secure the country’s food security into the future.
Meanwhile, coping with all of these increases Essack advised that agribusiness owners “try and find different market segments and negotiate with the end buyer to [absorb] some of those costs.”
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