Impact of rising electricity, rates and water charges on property owners

The rising charges for utilities such as electricity, rates and water are pressing hard on both residential and commercial property owners.

For homeowners in particular, who cannot pass on any part of these costs, the future looks even bleaker. Moreover, the economy in general is hurting as these imposts are pushing up inflation to the edges of the SA Reserve Bank’s upper target of 6%.

Eskom’s latest bombshell was not unexpected, but it is no less painful for that. The electricity supplier has applied to the National Energy Regulator (Nersa) for a 16% a year increase for the next five years, which means the cost of electricity will more than double from the current Eskom charge of 61 cents kw/h today to 128 cents kw/h in 2017. As it is, tariffs have already risen by more than 200% over the past five years, according to Electricity Intensive Users Group (EUIG).
Nersa will make a decision in February and increases will kick in in April for Eskom customers and in July for electricity supplied through municipalities. Economist Mike Schussler avers that if Nersa accepts Eskom’s latest request, the increase between 2002 and June 2017 – the end of the current five-year period – would equal 580%.

What is not often realised, or debated, is that Eskom’s price increases are only the tip of the power supply iceberg. On top of Eskom’s charge, municipalities – which distribute almost half the country’s electricity – add their levies. These can be eye-openers. An example is my own monthly electricity bill from Cape Town Municipality; the tariff ranges from R1.13 kw/h to R1.40 kw/h. That’s a very long haul from Eskom’s 61 cents kw/h. But consumers receiving electricity directly from Eskom also suffer from additional charges. These include a daily service charge (roughly R14), daily network charge (R42) and an “environmental“ levy of R10. Most municipalities continue to subsidise power and other charges to poor households. But in the end, someone has to pay the piper.

The EUIG, whose members include the country’s mining and industrial giants, has asked that municipalities’ pricing policies be examined to ensure that they are fair. Trade and Industry Minister Rob Davies has asked for a cap to be imposed on municipalities.

But the silent killer in all this is Value Added Tax. Each time Eskom increases its tariffs, 14% VAT is slapped on top. When the municipalities add their mark-up yet another 14% VAT is added. And so it goes on – compounded, it’s another example of what tax lawyers call “bracket creep”. And, one might ask, where is the added value?

In its submission to Nersa, Eskom says that its tariff increases so far have failed to cover costs. Eskom chief executive Brian Demes rationalises: “If prices are not cost reflective then every unit of electricity is subsidised, either by taxpayers or future users.”

Eskom has included for the first time independent power producers in its submission. In the requested 16%, three per cent is to support the introduction of renewable energy projects.

These, mainly solar powered, are projected to supply 896.5 megawatts of the 3 725 MW national target for renewable energy by 2016. This compares with plans for Eskom’s coal-fired power stations at Kusile and Medupi, each of which will have capacity of 4 800 MW. However, the government expects that renewable energy costs will be significantly higher than average Eskom tariffs and any new power stations after Kusile and Medupi.

At least we have some respite before Eskom’s tariff increases are promulgated. We don’t have such a breather with that other inflationary villain – fuel. The latest price hike in August was, at 93 cents/litre, the highest ever single increase and helped spur headline consumer inflation to jump almost 1% from August to September. Petrol now costs R11,85 on the coast and R12,20 inland.
The reason normally given for the variation is that our refineries – other than Sasol – are all situated at the coast. Now eyes are beginning to focus once again on Sasol’s role. The SA Communist Party, for instance, wants Sasol nationalised (again!), claiming that its cost of production is around US$40/barrel and thus, due to our import parity pricing policy which enables Sasol to charge the same as an imported barrel of oil, the company is making huge profits. It should charge much less for its fuel, says the SACP.

Meanwhile, the Competition Commission has charged some of the oil majors operating here with collusion in the marketplace.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 19 Feb 2018
      Possibly one of the biggest sources of contention between landlords and tenants surrounds the rental deposit. “Most tenants rely on getting their rental deposits back when moving, so that they can use it to pay a deposit on their new home. Having it withheld or even having large amounts deducted can lead to a lot of distress,” explains Bruce Swain, CEO of Leapfrog Property Group.
    • 19 Feb 2018
      Situated approximately halfway between Johannesburg and Pretoria, Midrand was established in 1981 and forms part of the City of Johannesburg Metropolitan Municipality. It has become one of the major business hubs in the country with major pharmaceutical, textile, telecommunication and motoring giants situated within its boundaries.
    • 19 Feb 2018
      The PayProp Rental Index Annual Review of 2017 shows that the rental market suffered from much volatility during the year. It kicked off with rental growth spiking in January with weighted year-on-year growth (YoY) growth peaking at 8.3% before dropping to 6.34% in July, dipping down to less than 5% in November and then experiencing a slight uptick at 5.75% in December.
    • 19 Feb 2018
      While most homes in cluster complexes, estates and other gated communities come with at least one garage or carport, residents would often like additional permanent parking or storage areas for things like trailers, bikes, boats and caravans.
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us