Key Takeaways
- A South African court has rejected a 54 billion-rand ($3.2 billion) settlement between the country’s energy regulator and power utility Eskom over a tariff-calculation error.
- The court ruled that settling without public participation violated policy and ordered the regulator to consult the public before making a final determination.
- The proposed settlement would have raised electricity prices by 8.76% for the year starting April 1, exceeding the central bank’s 2026 inflation forecast.
- The South African Reserve Bank projects headline inflation to average 3.5% next year, and a lower tariff would support its goal of reaching a 3% inflation target by the third quarter of 2028.
Introduction to the Settlement Rejection
A recent ruling by the High Court in Pretoria has sent shockwaves through South Africa’s energy sector. The court rejected a 54 billion-rand ($3.2 billion) settlement between the country’s energy regulator, the National Energy Regulator of South Africa (Nersa), and power utility Eskom. This settlement was reached in July, after Eskom challenged a January decision by Nersa regarding the scope of electricity price hikes starting April 1. The proposed settlement would have raised electricity prices by 8.76% for the year starting April 1, and by 8.83% in the year beginning April 1, 2027.
The Tariff-Calculation Error
The settlement was a result of a tariff-calculation error, which Eskom acknowledged in September. The error would have been passed on to consumers, resulting in higher electricity prices. However, the court ruled that the parties had failed to explain how they calculated the figure, describing the proposed settlement as "little more than a thumb-suck." This lack of transparency and public participation in the settlement process was a major factor in the court’s decision to reject the settlement. The court ordered Nersa to consult the public before making a final determination, ensuring that the settlement process is more transparent and inclusive.
The Court’s Ruling and Its Implications
The court’s ruling has significant implications for South Africa’s energy sector. The proposed settlement would have far exceeded the central bank’s 2026 inflation forecast, which could have had a negative impact on the economy. The South African Reserve Bank now projects headline inflation to average 3.5% next year, and a lower tariff would support its goal of reaching a 3% inflation target by the third quarter of 2028. The court’s decision ensures that the regulator will have to consider the impact of the settlement on consumers and the broader economy, rather than simply accepting a proposed settlement without proper scrutiny.
The Impact on Consumers and the Economy
The rejection of the settlement is a welcome relief for consumers, who would have borne the brunt of the higher electricity prices. The proposed settlement would have resulted in significant increases in electricity prices, which could have had a negative impact on households and businesses. The court’s decision ensures that the regulator will have to consider the impact of the settlement on consumers and the broader economy, rather than simply accepting a proposed settlement without proper scrutiny. This decision also highlights the importance of transparency and public participation in the settlement process, ensuring that the interests of all stakeholders are taken into account.
The Way Forward
The rejection of the settlement means that Nersa will have to go back to the drawing board and reconsider the proposed tariff increases. The regulator will have to consult with the public and consider the impact of the settlement on consumers and the broader economy. This process is likely to take several months, and it is unclear what the final outcome will be. However, one thing is certain – the court’s decision has sent a strong message about the importance of transparency and public participation in the settlement process. The regulator will have to ensure that any future settlements are properly scrutinized and that the interests of all stakeholders are taken into account.