South Africans are set to pay more for power, as the National Energy Regulator of South Africa (Nersa) has given Eskom the green light to increasing its tariff by over 15% for the 2021/22 financial year.
The Automotive Industry Development Centre in the Eastern Cape (AIDCEC) said an electricity tariff increase of 15% would impede the South African automotive supply chain’s drive for greater levels of global attractiveness.
According to the AIDCEC, mounting input costs could curb growth in volumes and particularly in exports, resulting in the difficulty for the automotive sector to achieve targets for the country relating to inclusiveness, localisation, and job creation.
Thabo Shenxane, CEO of AIDCEC, said the tariff increase would negatively affect the Eastern Cape economy, which is driven by automotive manufacturing. “As South Africa’s leading producer of vehicles and its biggest exporter, accounting for around 49% of SA’s vehicle exports, the Eastern Cape and by extension South Africa’s supply chain will be under even greater pressure to produce at competitive prices,” Shenxane expressed.
“Not too long ago, the cost-effective and stable electricity input was a competitive advantage of South Africa’s automotive value proposition. This is no longer the case, and the sector cannot keep absorbing such increases. The losers, in this case, will be regions that dominate autos production such as the Eastern Cape,” said Renai Moothilal, executive director of the National Association of Automotive and Allied Manufacturers (Naacam), who saw the Eastern Cape automotive manufacturing sector as a vital cog in the overall South African automotive sector.
The AIDCEC has stated that according to its experience, generally electricity costs are between 5 and 10% of total operating expenses for medium to large auto manufacturers and up to 20% for smaller companies and that the automotive sector, the metal, glass, and rubber processing facilities will be impacted the most as they take on higher energy-consuming processes.
The AIDCEC reported that around 13% of the automotive firms that supply directly to OEMs fall into this category in the Eastern Cape.
According to Elmar Thiart, AIDCEC’s energy management project manager, industries or companies known for high energy consumption will have to continue evaluating alternative energy sources or alternative methods to assist in creating the same product, to ensure long term sustainability.
In addition to the issue of pricing, Shenxane believes that to ensure a stable power supply network, Eskom should be allowed by the government to work alongside independent power producers to help with energy supplementation where Eskom fails to meet demand.
“As we lobby and position the Eastern Cape for greater manufacturing-related investment, the issue of a stable power supply and reasonable tariffs is key,” Shenxane stated.
Shenxane said the AIDCEC was playing an active role in assisting companies with energy management issues.