South Africa’s Energy Intensive User Group (EIUG) reported on Friday that it had initiated an industry-wide impact assessment of the country’s fast-rising electricity price path, which it said had the potential to threaten the country’s future competitiveness and undermine prospects for further minerals beneficiation.

It reported that a number of refineries and smelters had already closed and said its study would seek to determine the state of energy-intensive firms and their prospects. The information would be used to inform suggestions on how the country could avoid additional closures and the associated job losses.

The organisation, whose members consume about 44% of the country’s electrical energy, also called on the National Energy Regulator of South Africa (Nersa) to audit the 19.8% rise in Eskom’s primary energy costs for its financial year to March 31, 2011. It noted that rise was above the 17% increase in primary energy reported in 2010 and that Nersa should seek to determine the root causes.

Eskom said its primary energy costs had already risen to 16c/kWh and that they were likely to rise at rates well ahead of inflation in 2011/12. In fact, it warned that coal-related inflation could be between 12% and 15% over the coming few years as it moved to secure supply and, in some cases, improve the quality of the coal it uses.

The utility’s total costs had also risen to 32.8c/kWh from 28.2c/kWh in 2010, mainly on primary energy- and employee-related cost inflation. Primary energy costs rose to R38.8-billion from R29.1-billion a year earlier, including R5-billion for government’s 2c/kWh environmental levy, which became effective on July 1, 2009.

The EIUG repeated its concern that South Africa’s power prices, which it said could double to 100c/kWh in the medium term, were rising too fast, which would have negative consequences on business. In real terms, the EIUG believed that the average Eskom price in 2011/12 would be about 50c/kWh, and that the average tariff could settle at around 75c/kWh to 80c/kWh by 2016.

Eskom was still working on its tariff application for the next multiyear price determination period from April 1, 2013, until March 31, 2016. But the State-owned utility had already hinted that it might apply for two more increases of around 25% a year. Last year, Nersa approved average increases of 25% a year for the three-year period from April 1, 2010, through until March 31, 2013.

The EIUG, whose members include the largest mining and industrial businesses operating in South Africa, believes such increases could threaten further minerals beneficiation, which was one of the pillars of the government’s New Growth Path economic vision.

“These price increments add additional pressure to industrial customers to just maintain current production levels and further price increases will result in production halts and job losses, which South Africa can ill afford,” it warned in a statement.

While it was supportive of a strong and financially healthy Eskom, a balance needed to be struck between Eskom’s financial health and the affordability of electricity.

The next round of tariff increases would push Eskom’s finances into a “very comfortable zone” and Nersa should, thus, move to militate against an unnecessary rise in cash and profitability beyond a return of assets of 11.5%. Eskom, which currently achieves a return of 7.5%, was aiming to achieve a return of 14%.

The EIUG urges companies currently concerned about the impact of electricity prices to go to www.eiug.org.za to register to participate in its survey.