The average yearly tariff increase of 16% being sought by power utility Eskom under the third multiyear price determination period (MYPD3), which will run from April 1, 2013, to March 31, 2018, could be reduced to 10.8% and remain cost reflective, Business Unity South Africa (Busa) said on Monday.

The Busa statement, which is the outcome of research it commissioned ahead of public hearings to be held by the National Energy Regulator of South Africa (Nersa), has been released amid growing warnings from business, labour and civil society groups that further above-inflation power price increases will negatively affect a number of sectors, particularly mining and manufacturing.

The organisation also stresses that further savings could probably have been found if Eskom had provided more detailed information.

The analysis suggests that the tariff increases outlined in Eskom’s MYPD3 application would have significant negative long-term implications for households, industries and the economy at large.

“This makes Nersa’s interrogation of the MYPD3 cost estimates all the more crucial, especially given that significant savings are available when performing a detailed cost assessment of the MYPD3 application. This suggests that much of the negative economic impact associated with the prices proposed in the MYPD3 application can be mitigated without compromising the electricity supply,” Busa stated.

Besides the economic impacts, Eskom’s proposals should be strongly interrogated in light of the fact that nominal electricity tariffs had tripled over the past five years. In addition, power costs had been exacerbated by additional premiums charged by municipalities.

Busa adds that, as a result, South Africa has witnessed unprecedented increases – in both quantum and pace – in electricity prices. “In the submission to Nersa during the consideration of the previous MYPD2 application, Busa cautioned on the negative impact of significant and rapid price increases on businesses – particularly those within the energy-intensive industries and small businesses,” it stated.

Since then, Busa has been assessing the impact of present electricity price increases on the cost of doing business. South African businesses, including those in the prior job-creating sectors, have become increasingly exposed to increased unit costs of production.

“Our consultation with members and industry stakeholders has revealed considerable knock-on effects on the viability of businesses, and the ability of industries to create jobs. When taken in the context of global demand conditions, and the profile and competitiveness of similarly placed trading partners, further excessive increases in the cost of electricity will have a real impact on the competitiveness and output of many South African firms,” it concluded.

Others have warned that the sectors likely to be most affected are also trade-exposed and, thus, have a limited ability to absorb the substantial increases in real electricity tariffs. As a result, the proposed electricity tariff increases could be expected to adversely impact these sectors’ output, employment and investment decisions.

But other less electricity-intensive sectors could also be expected to be adversely impacted through “second round” effects of the proposed electricity tariff hikes.