FYI summary on Nersa application from the NMB.
13 companies in the NMBM submitted an application against Nersa & the NMBM in the Pretoria High Court, challenging the legality of the 2013 NMBM municipal electricity tariffs.
The application is supported by the Nelson Mandela Bay Business Chamber, co-applicant in this challenge.
The foundries in the NMB, being Autocast, Borbet and Weir Minerals, are applicants, next to companies such as Shatterprufe, Coca Cola, Visteon and Johnson Controls.
For the last 2,5 years, a group of energy intensive companies in conjunction with the Business Chamber, tried to engage intensively with the NMBM to get more reasonable industrial electricity. Despite the obvious evidence of job losses and financial hardship for the companies, the NMBM decided to ignore our engagement and once again just applied for general tariff increases last July. Nersa followed suit by approving the NMBM’s application. The Municipality effectively generates a significant amount of income at the expense of electricity users.
Municipal tariffs well above equivalent Eskom direct tariffs are a continuing problem for industry and other industrial users.
60% of South Africa’s electricity is purchased directly from Eskom, 40 % of SA’s electricity is being distributed through Municipalities. There are more than 2000 (!) electricity tariffs in South Africa, which makes for a very complicated situation. Every municipality has a set of tariffs which are a reflection of the Eskom tariffs, and differences between tariffs are considerable. Metros such as Durban and Cape Town for example, have industrial tariffs which are much closer to the equivalent Eskom Direct tariff in comparison to the NMBM.
Nersa themselves confessed in a parliamentary hearing in November 2012, that there are “structural and other problems with Municipal tariffs”.
They also stated that Municipal Funding through electricity tariffs “has reached a tipping point and needs to be reduced” and that municipalities “do not seem to understand the impact on Industry”
Additionally, Nersa commented that “Municipalities do not have the proper skills”, nor “do they have the proper information” to perform the distribution function.
Despite the above, Nersa has failed to deal with this fundamental problem for the 2013 tariff determination for the NMBM.
This determination leaves us with another year of industrial electricity tariffs which are close to 35% above the equivalent Eskom Direct Tariffs. This lack of strategic approach towards industry needs to come to an end. Our preferred route of addressing this problem, which is engagement, has failed. Intensive attempts to engage with the energy regulator, local, provincial and national government did not change the status quo. Unfortunately, industry’s only effective weapon in this battle is litigation.
Although the application concerns the NMBM tariffs, it obviously has national relevance as the same arguments are applicable to many municipalities, which in total distribute 40% of the country’s electricity.
In the NMBM, we would only pay about 76% of the current tariffs if we would be supplied by Eskom Direct. This unfair ‘surcharge” or “factual taxation” which is levied on municipal electricity users is at the core of the application.
The litigation is argued around following legal points:
– That the excessive tariff which the NMBM charges includes an effective surcharge, which is a factual taxation above the cost to distribute electricity in the NMBM. NERSA has no constitutional power to impose a surcharge indirectly, or on behalf of any Municipality: Nersa, being the energy regulator, has no powers to regulate taxation, surcharges or other municipal financial affairs.
– That in approving the relevant electricity tariffs, NERSA did not consider relevant information, and did not apply its mind (Nersa did not have the required financial information available to make a proper tariff determination. They impose a “general” inflationary based increase, without having data for the NMB at their disposal)
– That business in Nelson Mandela Bay pays unjustifiably higher rates for electricity compared to business that fall outside of the Nelson Mandela Bay licenced area;
– That no concession is granted to industrial electricity users within the Nelson Mandela Bay Municipality licenced area;
– That the imposition of the Nelson Mandela Bay Municipal tariff did not comply with various legislative requirements, and is in violation of constitutional rights: The NMBM once again did not take up their legal obligation to consult with stakeholders regarding the 2013 tariffs, they also failed to comply to many of the license conditions which they are bound to comply to as a distributor of electricity as se out in the license conditions.
The future and imminent impact of the tariff increases will require:
– Industries to recover the costs through increasing product and commodity pricing, resulting in the consumer paying more (over and above their home electricity bill), increasing the general cost of living;
– Certain industries to consider foreclosure or relocation to alternate provinces
Current and projected electricity tariffs have a significant adverse economic impact on the continued survival of the manufacturing industry and commercial sector in the NMB.
The electricity cost to industry in Nelson Mandela Bay is amongst the highest in the world and has reached a tipping point. The more a business depends on energy, the more it will be affected.
Municipal Mark-ups on the NERSA tariff of up to 50% are a catastrophic reality for industry and business. Energy Intensive Users are already at a point where 950 jobs have been lost and investment has come to a grinding halt. The increase has considerable knock-on effects on the competitiveness, viability and sustainability of businesses, and the ability of industries to retain or even create jobs.
We need an electricity price path which will ensure that South African business remains financially viable and creates investment opportunities which attract investors, rather than deter them. One of these catalysts is to provide a sustainable utility, with good quality of supply that remains affordable for all South Africans.
David Mertens
November 8th, 2013