How will South African industry deal with tariff hikes and carbon taxes?

African Utility Week to assist Large Power Users to face energy obstacles

The proverbial axe is falling on ‘business as usual` as every industry in South Africa, from mining to manufacturing to retail, is cringing at the thought of rising energy tariffs and the impending implementation of a carbon tax.

Stemming the tide of rising tariffs
On the receiving end of tariff hikes, industry is dealing with three significant elements, namely the cost of electricity, uncertainty around sufficient electricity supply and carbon emission management. According to Shaun Nel, Project Director & Advisor, Energy Intensive Users Group of Southern Africa (EIUG), “the current request by Eskom to raise electricity prices by 16% per annum over 5 years will have a significantly negative impact not only on mining and industrial customers but small business, commercial and residential users too. These electricity prices are making South African industries uncompetitive in the global environment. These prices will reduce investment and decrease profitability which has an impact on employment.”

The proposed electricity price trajectory, which has risen from 17c/kWh in 2006 to 60c/kWh in 2012 and is projected to be R1,28/kWh by 2017/2018, could translate into an astounding 653% increase (compounded over 5 years) in some sectors and is in danger of pricing South African industry out of the global market.

Nel, who will be speaking at the 13th annual African Utility Week conference track on Large Power Users, however, is optimistic and concludes by advising that, “the EIUG doesn’t believe that industry requires subsidies, we believe that if Eskom’s costs are cut and that non electricity charges and taxes are removed from the tariff, industry will be able to grow and remain competitive. This demand increase for electricity from those sectors will then contribute to lowering the tariffs for residential users”, but Nel warns that, “the issue with Municipal tariffs must be addressed, as several studies have shown that Municipalities are significantly increasing tariffs on electricity to cross subsidise other services.”

Is that carbon tax on your plate?
In addition to an increasing tariff, South Africa is looking to introduce a carbon tax next year to reduce harmful greenhouse gas emissions, potentially adding to the pressures on large industry.  The tax, however will be phased in, with nearly two-thirds of emissions being tax-exempt until 2020 to lessen the impact on industry.  While there has been no official announcement on the status of the proposed carbon tax, communication from the Minister of Finance states that carbon tax will be a reality by early next year.

Treasury has also proposed a 60% tax-free threshold on annual emissions for all sectors, including electricity, petroleum, iron, steel and aluminium. The future for industry could hold a carbon tax of R120 per ton of CO2e (carbon dioxide equivalent) for emissions above the thresholds. The levy would come into effect in 2013/14, and increase by 10 % per annum until 2020.

The official announcement on carbon tax is awaited in the New Year, and only time will tell how industry will respond to the imminent implications of carbon taxes to long term strategies.  Dealing with this issue at African Utility Week is Robbie Louw, Director of Promethium, who will give the details and explain how it impacts on the power sector.  Even if the tax is not implemented in early 2013, Louw will explain what the issues are and how these can impact on the power sector in the future.

The dates for next year’s African Utility Week are:
Exhibition & Conference: 14-15 May 2013
Pre-conference Workshops: 13 May 2013

Site Visits: 16 May 2013
Location:  CTICC, Cape Town

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