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Consumers to fall deeper into debt due to electricity tariff hike

Consumers are at heightened risk of falling even deeper into debt because of the latest electricity tariff hike by Eskom. As of the 1st of April, the National Energy Regulator of South Africa (Nersa) granted the power utility a 12% increase for Eskom direct users.

Eskom had initially applied for a 32% tariff increase for the 2023/2024 financial year and an additional 22.52% in 2024/2025.

This increase comes on the back of yet another petrol price hike that comes into effect at midnight.

Debt Rescue, one of the biggest debt counselling companies in South Africa says this latest increase places an unprecedented strain on over-indebted consumers. It comes amid high interest rates and inflation which have been hard on households.

In February, inflation rose to 5.6 % year-on-year from 5.3 % in January, nearing the top of the central bank’s preferred range.

“For many South Africans, debt is a daily reality. And the additional financial imposed by these electricity price hikes exacerbates an already dire situation. It is not just a matter of facing high bills for the same electricity usage, it is about the added financial stress on families and individuals already struggling to make ends meet. When the average increase for specific industrial and urban tariffs is projected at 13.29% due to the affordability subsidy charge, the severity of the situation becomes even more apparent. The lack of tariff structural changes for the fiscal year 2024/25 only deepens the crisis for those currently in financial distress,” says Annaline van Der Poel, COO: Debt Rescue.

According to the General Industries Workers Union of South Africa (GIWUSA) workers will pay more for electricity which they will not be able to use without interruptions due to rolling blackouts.

The union calculates that these increases add up to 360% in real terms since 2007.

“These cents in differentials and changes may seem like small change to those who enjoy the financial stability, but are worth much in the life of a worker, half of whom are earning a minimum wage of R3 800 and as much as 75% subsidizing by less than R6 000 a month. Needless to say, the constant increase means these workers cumulatively afford lesser and lesser goods and services with the wages that are stagnant and generally tailing behind the inflation rate in the past years in particular,” says Koketso Phasha, Media Officer: Giwusa.

“The impact it will have primarily relates to affordability. The number of their clients and users of electricity who find it more difficult to afford electricity and there will probably be a higher degree of bad debts. This should be expected because this is a steep increase given where the inflation currently is. But direct impact with the municipality is limited because they will pass almost all of the increase to the end user,” says Mohamed Madhi, Energy Expert, Sinan Energy.

Consumer Economist at Liberty Zandile Makhoba notes that many households are also looking at alternatives such as gas and solar where possible. However, she warns that these can be a costly investment for lower income households and may not be a viable alternative.

Makhoba says for homeowners that can afford it, it means they’re diverting money from other expenditure to be able to accommodate the alternative.

Video: Cost of Living – Consumers to come under more pressure with latest electricity tariff hike

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