AgriSA responds to Eskom’s MYPD6 application, advocating for fair and sustainable tariffs.
Kulani Siweya, AgriSA Economics
In response to Eskom’s Multi-Year Price Determination (MYPD6) application, AgriSA has actively participated in the consultation process, submitting its detailed feedback and expressing concerns on behalf of South Africa’s agricultural sector.
Eskom’s proposal for significant tariff increases poses substantial financial risks to the agricultural industry and, by extension, to food security and economic stability in the country. AgriSA’s submission highlights these concerns, urging NERSA to consider the unique challenges facing the sector and to ensure that Eskom’s operational inefficiencies are addressed before any revenue increases are approved.
Eskom’s tariff increases: An unsustainable burden
Eskom’s application seeks revenue increases for fiscal years 2026 through 2028, which, if approved, would result in steep electricity tariff hikes. These proposed tariffs rise well above inflation indicators like the Consumer Price Index (CPI) and the Producer Price Index (PPI), directly impacting agriculture, an energy-intensive sector. Farmers rely heavily on electricity for irrigation, processing, refrigeration, and other key operations essential for food production and distribution.
The agricultural industry is particularly sensitive to energy costs due to its high energy reliance, making it vulnerable to rising input costs. Any substantial increase in electricity tariffs could lead to higher food prices, reduced profitability for farmers, and even jeopardise food security. This is especially concerning for sectors like grain, horticulture, dairy, and poultry, where energy-intensive processes are integral to production.
According to the Department of Agriculture, Land Reform and Rural Development (DALRRD), the sector’s annual expenditure on electricity amounted to approximately R10,4 billion in 2023/24, translating to between 10 20% in variable costs, which accounts for approximately 25% of total agricultural production. This figure can quickly skyrocket if the current trend of tariff hikes continues. To put it into perspective, electricity tariffs were 264% higher in 2024 compared to 2011, according to data from BFAP – this cost item represents an annual percentage increase of 9%, far outpacing other agricultural input costs and commodity prices (annual percentage change of 5-6%).
Operational inefficiencies within Eskom
AgriSA’s submission calls attention to Eskom’s operational inefficiencies, as documented in the 2023 report by the international energy association VGBE, which underscores ongoing challenges in Eskom’s management. AgriSA strongly recommended that NERSA scrutinise these inefficiencies, as they continue to impact Eskom’s financial stability and service reliability. Governance issues, high workforce and maintenance costs also contribute to Eskom’s bloated expenses. Addressing these inefficiencies could alleviate the need for severe tariff increases, making electricity more affordable for all South Africans.
Coal procurement and fleet utilisation: Containing costs
Another area of concern in AgriSA’s submission involves Eskom’s coal procurement practices. Historically, coal procurement has been one of Eskom’s largest cost drivers, with practices that have been criticised for inefficiency and high costs. AgriSA supports recommendations from the VGBE report, which advocates for rigorous audits and adherence to efficient procurement standards.
Improved coal procurement practices would help mitigate excessive costs within Eskom’s revenue model and reduce the financial pressure passed on to consumers. Furthermore, Eskom’s fleet utilisation has been suboptimal, affecting both cost efficiency and operational output. Addressing these inefficiencies could lead to improved fleet performance, further reducing the need for escalated tariff rates.
Threats to investment and sector competitiveness
AgriSA has also voiced concerns over the impact of rising electricity costs on agricultural investment and competitiveness. Increasing tariffs, combined with Eskom’s reliability challenges, are pushing the agricultural industry toward alternative energy sources, such as solar and wind power. While this shift offers a long-term sustainable energy solution, it could lead to reduced reliance on Eskom’s services, diminishing the utility’s customer base and creating a cycle where fewer customers share an increased tariff burden.
AgriSA’s recommendations to NERSA
Given these critical concerns, AgriSA urges NERSA to reject Eskom’s MYPD6 application in its current form. Instead, AgriSA recommends that NERSA prioritise measures to incentivise operational efficiency and cost reductions within Eskom. By enforcing regulatory compliance and ensuring Eskom adheres to best practices in management, procurement, and fleet utilisation, NERSA can help secure a more sustainable tariff model that meets the needs of all stakeholders.
Moreover, AgriSA advocates for tariff structures that balance Eskom’s financial needs with fair pricing to end-users. An equitable tariff framework would mitigate the adverse impact on the agricultural sector, allowing it to remain economically viable while supporting South Africa’s food security and export competitiveness.
Ensuring a balanced path forward
The financial stability of Eskom is undoubtedly critical to South Africa’s economy, yet it cannot be achieved at the expense of agricultural viability and food security. AgriSA’s participation in the MYPD6 consultation process represents the interests of South African farmers and the broader agricultural community, whose livelihoods are intertwined with affordable and reliable energy access. In response to Eskom’s application, AgriSA calls for a balanced approach from NERSA – one that aligns Eskom’s operational needs with economic stability and affordability for the agricultural sector.
As NERSA considers its decision, AgriSA remains committed to engaging in constructive dialogue, advocating for a tariff structure that supports Eskom’s financial health without compromising the agricultural sector’s contributions to the economy and food security. Through these efforts, AgriSA seeks to foster a collaborative environment where Eskom’s revenue requirements and the needs of South Africa’s agriculture sector can coexist sustainably.
