Südafrike : November 20, 2008

Compared to the recent increases in electricity prices, the impact on businesses could be much worse should the Energy Conservation Scheme (ECS) developed by Eskom and the Department of Minerals and Energy be given the green light. By our estimate, the penalties proposed under the plan are so punitive and poorly conceived that they could push many companies into bankruptcy by increasing their monthly electricity bills by 100 to 900 percent.

Under the scheme, businesses with monthly electricity bills greater than R 3,000 will have to reduce their usage by between 8 and 25 percent depending upon their classification. The ECS has earmarked October 2006 to September 2007 as the baseline period meaning that electricity used during this period will be used as the “yardstick” in determining whether any company is complying with the reduction targets. In terms of ECS’ Rules, consumption reductions are 8 percent for mining and agriculture, 10 percent for industry, 20 percent for commercial and residential, and 25 percent for government/state-owned enterprises.

Failure to meet mandated reductions will result in punitive electricity tariffs for the portion of the customer’s energy consumption in excess of its allocation. There will be three applicable price bands – a control band, a disincentive band and a punitive band. Furthermore, there will be three punitive tariffs with the first for initial transgression in the year under consideration. Thereafter, the price band will be multiplied by 1.5 and 2.0 for the second and third transgressions in the same year. Our main concern is that the baseline penalizes business growth. For example, a business which grows after the baseline period is penalized. Most observers see the plan as counterintuitive to the need for growing, not shrinking, the nation’s economy.

As the ESC rules seem set for application, it will be imperative for every business to accurately determine their energy usage in comparison to their baseline. Without such knowledge, a company will run the risk of unnecessarily paying more for their electricity services.