SOUTH Africa's government allowed the state-owned power utility Eskom Holdings Ltd to raise prices by 27.5 percent this year, adding to inflation pressure.
Eskom can increase power prices by between 20 percent and 25 percent annually over the next three years if the "current economic climate continues to prevail," the National Energy Regulator said in a faxed statement. Eskom had requested a 61-percent nominal increase this year. The increase awarded includes the 14.2-percent gain in tariffs granted in December, Bloomberg News said.
Eskom wants to double prices over the next year to help fund a US$42-billion expansion plan after a power shortage slashed mining output in the first quarter, and to pay for higher coal costs. The tariff rise may boost inflation, adding to pressure on the Reserve Bank to continue lifting interest rates after 10 increases in two years.
"Most people agree that it's desirable to increase electricity prices because they are too cheap," Jean-Francois Mercier, an economist at Citigroup Inc in Johannesburg, said before yesterday's decision. "But not in a brutal way that would worsen the inflation picture."
Eskom was expected to be awarded a 25-percent tariff increase, according to the median forecast of five economists surveyed by Bloomberg News. Raising prices by between 25 percent and 30 percent this year will push up inflation by about 1 percentage point, according to Arthur Kamp, an economist at Sanlam Investment Management, South Africa's third-largest private money manager.