In April Eskom tariffs rose nearly 13%, about 10 percentage points above inflation. The jump caps an increase of 250% above inflation since 2008. As a result, Eskom’s revenues have climbed from 1.7% of the GDP in 2008 to about 4.3% in 2025. Yet Eskom is now selling 25% or so less electricity than in 2008.
In 2022, according to data from the more recent Income and Expenditure Survey, the average household spent 4.3% of its income on electricity, up from 1.8% in 2006. The burden rose from 2.6% to 5.4% for the poorest 60% of households. In short, over the past 15 years the regulatory framework for Eskom has failed miserably to control its prices.
Eskom in effect formed part of a social compact that gave it near-monopoly status — it still supplies 85% of the national grid — in exchange for efficient and reliable service. We need a better understanding of why the legal framework and government have fallen so far short of that aim.
The law that regulates Eskom, the Electricity Regulation Act of 2006, requires the National Energy Regulator of SA (Nersa) to set tariffs that “enable an efficient licensee to recover the full cost of its licensed activities, including a reasonable margin or return”.
This wording reflects textbook anti-monopoly rules, which are designed to prevent dominant firms from using their market position to sustain either unnecessary costs or superprofits. But the act entrenches three basic weaknesses, enabling Eskom’s inefficiency to get out of hand.
First, the act doesn’t determine which costs are unavoidable and which should be rejected. Undoubtedly, costs have risen at Eskom. But to what extent are those increases rooted in corruption, incompetence or waste, as opposed to necessary investment and procurement? The act doesn’t even provide a definition of efficiency, much less set criteria or mandates to separate the wheat from the chaff.
Second, Nersa can determine the price of electricity, but it cannot force Eskom to cut its costs. In practice, over the past 15 years whenever it has required Eskom to stick to inflation-level prices Eskom has just run up huge deficits.
Finally, and most fundamentally, the government, as Eskom’s owner, has not insisted that Eskom control its costs. Instead, the National Treasury in particular has consistently called for “cost-reflective” tariffs, without specifying what costs are acceptable.
In practice, Eskom’s unit cost per kilowatt hour rose 290% above inflation in 2008-24, according to figures in its annual report deflated with the consumer price index (CPI). The main cost driver was soaring capital costs, mostly due to delays and faults at Eskom’s new Medupi and Kusile plants.
By itself, interest plus depreciation accounted for more than a third of Eskom’s cost increases. In second place was expanded generation from private suppliers, for which Eskom pays. Third was higher diesel consumption, helping offset breakdowns in the coal plants, plus inflated prices for domestic coal. The domestic unit price for coal climbed 170% above inflation in 2005-24, compared with 86% for exports.
No normal business could sustain a near 300% real price increase without going bankrupt, especially if its quality also plummeted. Eskom has relied on its monopoly position to shift the cost escalation to businesses and households, bolstered by the difficulty of developing alternative energy sources and enormous fiscal transfers. That strategy has dragged down national economic growth and added to the burdens shouldered by working-class communities in particular.
Eskom’s recent success in cutting load-shedding by improving its plant performance has been impressive. Securing long-term economic growth requires a similar high-level and consistent commitment to controlling its costs.
• Seidman Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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