The National Energy Regulator of South Africa's (Nersa) decision to increase Eskom's power tariff by 24.8 per cent from April 1st 2010 has received the backing of the Chamber of Mines of South Africa.

Although the chamber acknowledged the move would have an adverse effect on mining costs, it said the impact of the increase was "manageable".

However, had Nersa accepted Eskom's original demands then the chamber suggested significant problems could have been caused for the mining industry.

The 24.8 per cent tariff rise will apply for a year, before being followed by a 25.8 per cent increase for 2011/12 and a 25.9 increase for 2012/13.

Prior to the decision being made, Eskom had asked for a 45 per cent annual hike for the next three years, before downgrading this request to 35 per cent before Christmas.

According to the state-owned power utility, extra money is needed to meet rising operational and capital costs.

Despite this, Nersa chairperson Cecilia Khuzwayo confirmed yesterday (Wednesday, February 24th) that the regulator had chosen to restrict Eskom's recoverable revenue to R85 billion in 2010/11, R105 billion in 2011/12 and R141 billion in 2012/13, which is significantly less than the R99 billion, R146 billion and R216 billion demanded.

Even so, the average electricity price is likely to be pushed up to 41.5c/kWh from 33c/kWh this year, and to around 65c/kWh in 2012/13.

Commenting on the announcement, the Chamber of Mines said: "While preliminary modelling work by the chamber shows that the proposed electricity price increases will affect different mining smelting operations differently, the tariff increase permission granted would be much more manageable and cause much less damage than a 35 per cent increase per annum over the same period."

The chamber also confirmed that the decision was in line with the model it put forward at Nersa's public hearings in January 2010, and consistent with the Nedlac energy summit agreement.

Sources:

Chamber of Mines welcome entry price increases (24/02/10)

Mining chamber says SA power hikes will add strain, but in line with expectations (24/02/10)

© Adfero Ltd