News in South Africa 26th October:

1. Electricity prices to soar:

Eskom has warned that household electricity bills will increase significantly if energy regulator Nersa’s proposals for drastic changes in the way Eskom’s tariffs are determined are accepted.

Electricity prices to soar
Image taken by: Pok Rie

Other stakeholders are equally critical of Nersa’s proposals.

Nersa published a discussion paper about its proposals on September 24 and invited written comments from stakeholders.

It proposes moving from a “revenue requirement” approach to one that uses “a combination of principles”.

The three principles it provides for:

  • Activity based costing that differentiates between cost associated with, for example, generation, transmission and distribution;
  • Type-of-use tariffs that differentiate between tariffs for base load utilisation and emergency use, for example; and
  • Marginal pricing that differentiates between the pricing for different generating units.

This would be a marked departure from the current methodology that prescribes a formula for Nersa to determine Eskom’s allowable revenue based on its prudent cost and a reasonable return.

The allowable revenue is divided by the projected sales to get an average tariff, after which a further process follows to design detailed tariffs per customer grouping.

In terms of Nersa’s proposals the concept of “allowable revenue” must be done away with and “averaging is the enemy”.

In its submission Eskom says the consultation paper seems aimed at correcting industrial tariffs more than anything else.

Industrial customers have been subsidising households to the value of more than R8 billion per year.

Eskom warns that Nersa has not considered adequately what the impact of the removal of this subsidy will be on residential customers and says it is essential to determine the economic impact on all customer groupings before changing the existing methodology.

Read: Nersa proposes complete overhaul of Eskom price determination

2. Building sector confidence highs:

Confidence in the general building sector of the construction industry has improved to its highest level in three years.

It is being driven by the easing of Covid-19 lockdown restrictions, the government’s infrastructure programme and the rebuilding of property and infrastructure damaged in the unrest and protests in KwaZulu-Natal and Gauteng in July this year, according to the Construction Industry Development Board (CIDB).

However, the CIDB small and medium enterprise (SME) business conditions survey for the third quarter of 2021 revealed that the vast majority of general building respondents are still dissatisfied with prevailing business conditions.

The CIDB said general building and civil engineering confidence was at around 30 in the third quarter of 2021, which means 70% of respondents are dissatisfied with current business conditions.

The CIDB said general business confidence improved to 28 index points on a 100-point scale in the third quarter from 18 in the previous quarter but confidence in the civil engineering sector declined by eight index points to 30 in the same period.

By comparison, the latest FNB-Bureau for Economic Research (BER) building confidence index released last month revealed that confidence declined in the third quarter to 35 index points from 39 in the second quarter of 2021.

This meant that 65% of respondents are dissatisfied with prevailing business conditions across the building sector pipeline and FNB-BER said confidence among major contractors declined to record low levels.

The FNB-BER civil confidence index showed that more than 80% of respondents are dissatisfied with prevailing business conditions, with the slowdown in activity and profitability and persistently weak order books of particular concern.

3. Predictions for elections:

Investment Bank BNP Paribas has published a research note on South Africa’s municipal elections – set to be held on 1 November – with a particular focus on whether the ANC will slip at the polls.

The note, penned by economists, analysts and strategists at the bank, said that the local elections are difficult to predict because all major parties have experienced significant internal turmoil, the Covid-19 pandemic has made polling difficult, and citizens face severe economic hardship.

“In our view, lifting the country’s trend growth and socio-economic conditions will depend in part on local governments fulfilling their constitutional functions.”

“A poor performance by the ruling African National Congress (ANC) could lead to an internal backlash against the party leadership, making policy and succession less predictable, we believe,” it said.

If the ANC cannot form ruling coalitions in the major metropolitan areas of Johannesburg, Tshwane and Nelson Mandela Bay, and its share of the overall national vote slips below 50%, this might presage instability within the party, the group said.

It noted that the ANC’s contest over the candidate lists has already triggered significant internal conflicts, which would be harder to soothe if weak election results mean less patronage to dispense.

“The election can be seen as teeing up the ANC’s five-yearly national elective and policy conference in December 2022.

“A sufficiently poor performance would be likely, in our view, to provide a platform for a challenge to Ramaphosa’s leadership of the party and possibly a weakening of his ability to persuade or guide the party in accepting a more investment-friendly policy package.”

4. UK flights price uptick:

On Wednesday, the United Kingdom’s Chancellor of the Exchequer is due to present his Autumn Budget and Spending Review to that country’s Parliament. It may contain something of a bombshell for South Africa: a dramatic jump in the price of a flight between Britain and SA, with the potential to inflict new pain on a tourist industry heavily reliant on UK tourists.

All because South Africa is about 175km too far away from Britain.

The chancellor, Rishi Sunak, is now widely expected to announce reforms to the UK’s system of air passenger duty (APD), its principal tax on the aviation sector, through which it raised £3.6 billion in the 2019/2020 year.

Right now, the duty splits the world into two bands, for two starkly different rates of tax: countries within 2,000 miles of the UK, and those farther than that. That makes Europe, and a bit of North Africa, cheaper to fly to for Brits than all other countries, but makes no distinction between the likes of India and Australia, even though Australia is twice as far away.

If Sunak follows an approach favoured by his treasury, he will change that two-band system into one of three bands: countries up to 2,000 miles away; those between 2,000 miles and 5,500 miles; and those farther away than 5,500 miles. The idea is to have a “polluter pays” approach that actively discourages long flights with punitive rates, so for those longest flights, the tax will be high enough to discourage such travel.

Measured from capital city to capital city, as the APD system does, South Africa is just over 5,600 miles away from the United Kingdom.

The distance to South Africa is over the 5,500 mile limit – in metric terms some 175km – is so slight that South Africa could avoid the higher tax by declaring the more northerly town of Louis Trichardt its capital.

There has been little indication what the actual rate of tax would be on flights to South Africa, but it won’t be cheap. Right now the rate for economy-class passengers in the 2,000-mile band is £80, or some R1,600 added to the cost of a return flight. (APD is levied only on flights leaving the UK, not inbound flights.) That is more than six times the rate for shorter flights, those that fall within Europe.

If the same differential were to be used in the new three-tier system, the difference between a flight of 5,499 miles and one of 5,501 miles would start approaching the equivalent of tens of thousands of rands. UK travellers would be able to avoid that expense by going to virtually any other country on the continent – or anywhere in much of the rest of the world.

In other travel news:

The US has published new rules for travellers, removing its country-by-country travel restrictions and instead introducing international restrictions based on the vaccination status of individual travellers.

The procedures replace a system that essentially blocked most foreign nationals travelling directly from major markets, South Africa.

Starting on 8 November, the United States will admit fully vaccinated foreign air travellers from the 26 so-called Schengen countries in Europe – including France, Germany, Italy, Spain, Switzerland and Greece – as well as Britain, Ireland, China, India, South Africa, Iran and Brazil.

5. Policing crisis:

The South African Policing Union (Sapu) is calling for an end to attacks on women and men in blue.

This comes after a satellite police station was robbed in Sir Lowry’s Pass at the weekend.

Three armed thieves disarmed officials and held them at gunpoint before fleeing with firearms, cellphones and a laptop.

Arrests have yet to be made.

Sapu’s Lesiba Thobakgale: “This is a very serious issue that needs to be looked at. When we look at sectors that lead to attacks on police stations or attacks on police officials or even police killings, it is the issues relating to the lack of resources, be it human capital and or other resources.”

He said that police stations could not afford to be short-staffed, especially at night.

“In an incident in the Northern Cape, where one male was outside attending to complaints, it was a night shift, and another female was the one who was alone in the charge office, in a police station where there are guns, where there is everything, that is why criminals take advantage of that and by so doing, it is placing the safety of our members is in dangers because anyone can just come in and rob them.”

The Hawks’ investigation remains under way.

The union said criminals know of these vulnerabilities and take advantage of them to get hold of guns.

All information sourced from articles posted by: Moneyweb, BusinessTech, Business Insider, and EWN.

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