Electricity consumption also declined, by 1.5% y/y in July versus an average increase of 2.1% y/y in Q2.17.

In the first seven months of the year, electricity production increased by 0.7% outstripping the 0.3% y/y rise in consumption.

According to Eskom, the demand for electricity has declined by 0.5% a year since 2006, primarily on a 1.7% per year decline in consumption by large power users. This has coincided with the declining growth trend in GDP, commodity price volatility, rising electricity costs and unstable electricity supply.

Consumption is expected to remain suppressed this year, with GDP growth forecast to lift only slightly to around 0.5% from 0.3% in 2016.

Weaker consumption and improved generation capacity has yielded surplus capacity, which Eskom expects to grow steadily over the coming three years as additional units of the Medupi, Kusile and Ingula power stations become commercially operational.  

In its 2017 integrated report, Eskom outlined its funding requirement will total R337.7bn over the next five years (2017/18 – 2021/22) (see figure 3). The government guarantee framework was extended from 31 March 2017 to 31 March 2023 which coincides with the anticipated end of Eskom’s capital expenditure programme (see figure 4). According to the integrated report, by March 2017 Eskom utilised R254bn of the guarantees with a further R84bn awaiting approval.

With over two-thirds of the guarantees used up and with the utility under financial pressure following, amongst others, only a 2.2% tariff increase granted by NERSA this year, National Treasury has offered support as per Finance Minister Gigaba’s 14-point inclusive growth action plan announced in July. Details of what such support would entail could be outlined in the Medium Term Budget Policy Statement in October.

Government guarantee exposure to state owned enterprises (SOEs) is already a key sovereign credit rating weakness owing to the weak performance of the SOEs. The IMF has estimated that rising contingent liabilities in SOEs could push government debt levels from 51% of GDP presently to above the high-risk benchmark of 70% of GDP (see figure 5).

Moreover, electricity price increase pose an upside risk to SA inflation profile. In addition to the 20% tariff increase sought by Eskom for 2018, regulatory clearing account submissions for 2014 -2017 will also be made to recover costs. It has been estimated that NERSA could grant Eskom a tariff increase of as much as 30% next year (see figure 7). Electricity comprises 3.75% of the overall CPI basket and a tariff increase of this magnitude could add as much as 1.2% to CPI.