Nersa's multi-billion Rand blunder: a crisis for South Africa's energy sector

SOUTH Africa’s energy sector is the lifeblood of the economy; slight changes in electricity prices impact business and have a domino-like impact on prices, supply and demand of almost all goods.

The National Energy Regulator of South Africa (Nersa), a post-apartheid entity, was created by consolidating the Electricity Control Board, the Gas Regulator and the Pipelines Regulatory Authority. It is the independent regulatory authority mandated to govern the South African energy industry in accordance with the country's laws. Its core function is to balance the interests of energy producers, distributors, and consumers to ensure a sustainable and efficient energy sector for South Africa.

The recent revelation was that Nersa made a catastrophic multi-billion Rand error in its tariff calculation for Eskom resulting in a spike in electricity prices for households and businesses. This will likely result in an increase in inflation and negatively impact all South Africans. There have been calls for Nersa to re-open Eskom’s tariff determination for the current and next two financial years, given the regulator’s R54 billion error that is expected to result in further tariff increases over the period.

Nersa gave a green light for Eskom to introduce several double-digit price increases over the past two decades, with recent reports confirming that the average price rose a multiple of 8 from 19.9c/kWh to 165.43c/kWh between 2008 and 2024. 

From a financial perspective, this error is multifaceted in its damage:

- Investor confidence has been annihilated, this being a vital link to capital for a utility like Eskom, our country, and our credibility. Investors in energy projects, including renewable, independent power producers, and much-needed gas infrastructure, require regulatory certainty. They need to know that the rules of the game are stable and that the regulator is competent. Nersa's error shatters that confidence.

- Eskom's death spiral accelerated. They need massive capital investment to fix their generation fleet and grid, but they cannot attract that capital because it is not financially viable. Its viability is destroyed by inadequate tariff increases that fail to cover its costs. By underfunding Eskom by such a monumental margin, Nersa is not "protecting the consumer"; it is ensuring the utility's continued financial collapse. You cannot starve a patient and then be surprised when their health fails.

- The myth of "consumer protection": Nersa’s mandate is to balance the interests of consumers with the need for a sustainable utility. This error demonstrates a catastrophic failure on both fronts. While a lower tariff might seem like a win for consumers in the very short term, it is a Pyrrhic victory. It directly leads to more load-shedding, less maintenance, and a death spiral that will ultimately require even more drastic tariff hikes or larger bailouts from the fiscus, paid for by us, the consumers, through taxes.

Will Nersa ever get billing right?

This is the multi-billion rand question. The issue is not one of technical accounting capability; the core problem is political and structural.

Nersa is trapped in an impossible political bind. On one side, it faces a furious public and politicians who will be angry with any electricity price increase, no matter how justified. On the other side, it faces the unassailable economic reality that electricity must be paid for. Its response has been to fudge the numbers, to delay, and to employ accounting sleight of hand to avoid making the tough but necessary decision. This latest error is the most spectacular manifestation of that failure.

Fixing this requires more than just correcting a spreadsheet formula

It requires:  

- Depoliticising the process: Tariff setting must be based on transparent, rules-based economic models, not political pressure. The calculation of Eskom’s revenue requirement should be a technical exercise, not a political negotiation. The government must look at other creative measures within the budget to subsidise the electricity delivery to the poor.

- Embracing the full cost reflectivity: The tariff must reflect the true, full cost of producing and delivering electricity, including the cost of capital needed for future investment. Continuing with subsidies and hidden bailouts only masks the problem and makes the ultimate reckoning worse.

- Radical transparency: Nersa must publish its models, assumptions, and calculations in exhaustive detail. It must subject them to independent, external audit and expert scrutiny before making a determination. The days of opaque decision-making must end.

For Nersa to proceed with a tariff based on a known, admitted error would be regulatory malpractice of the highest order. However, a simple recalculation is not enough. This moment must serve as a catalyst for a complete overhaul of how we govern our energy sector. Without a credible, competent, and independent regulator, there can be no energy stability. And without energy stability, there can be no economic growth. Nersa's billion Rand bungle is not just an accounting error; it is an economic own goal that the people of South Africa simply cannot afford.

Advocate Lavan Gopaul is the director of Merchant Afrika.

** The views expressed do not necessarily reflect the views of IOL or Independent Media. 

THE POST