JOHANNESBURG, 29 JULY 2020 – The Steel and Engineering Industries
Federation of Southern Africa (SEIFSA) is disappointed at the recent court
judgment against the National Energy Regulator of South Africa (NERSA) that the
latter acted unfairly in the MYPD4 decision concerning the inclusion of a
R23-billion Government grant without allowing Eskom to submit its representation.

SEIFSA economist Marique Kruger said the court’s ruling to review and set aside
NERSA’s decision on Eskom’s fourth Multi-Year Price Determination (MYPD4) for
the 2019/20, 2020/21 and 2021/22 financial years is really bad news for the Metals
and Engineering (M&E) sector, as local companies will have to absorb additional
shock in the form of increased electricity price of at least 10%, at a time when the
country is buckling under a struggling economy, aggravated by the impact of the
COVID-19 pandemic.

“Already, the electricity-intensive sub-components of the M&E sector are under
immense pressure and can ill afford this additional threat to their sustainability.
Moreover, the ongoing COVID-19 pandemic has compelled a revision of growth
forecasts significantly downward from a mild 0.6% to -9.1%, following weak
domestic growth, stagnant demand and heightened load-shedding, which
compounded increasing intermediate input costs, poor production levels, low
capacity utilisation and rising unemployment,” said Ms Kruger.

She said the court’s ruling did not bode well for business, given the fact that the
rest of the year was expected to be tough for the sector. The Coronavirus, she
said, had erased any hope of recovery in the medium term, with growth projected
to occur only in 2022. “Regrettably, this judgment merely adds to the strain,” Ms
Kruger said.

She pointed out that electricity costs represent a significant portion of the turnover
of the electricity-intensive sub-components of the M&E sector. With high energy
intensity indicating a high price or cost of converting energy into GDP, and vice
versa, generally this resulted in lower economic productivity, she said.

Ms Kruger said companies were still taking strain from increasing energy costs,
despite the increasing elasticity of demand for electricity as companies explore
other means of sourcing power.

Any further increase in electricity costs will further slow production and growth in
the sector, increase selling prices and result in a decline in exports due to poor
export competitiveness. It will also lead to more job losses.

“We recommend that a moratorium be placed on any further electricity tariff hikes
in order to accommodate struggling businesses and support the economy at this
unprecedented time, characterised as it is by increasing closure of many
companies in the sector and an accompanying jobs bloodbath,” Ms. Kruger said.