News in South Africa 4th April:
1. Petrol hike lower than feared:
A stronger rand exchange rate and the government’s decision to intervene on higher costs means South Africa’s ‘record’ petrol price hike this week will be comparatively muted, say economists at the Bureau for Economic Research (BER).
The government’s intervention to reduce the general fuel levy by R1.50/litre for April and May means that the petrol price is expected to increase by ‘only’ about 30 cents per litre on Wednesday (6 April), although diesel should still go up by about R1.50/litre, the group said in a research note on Monday (4 April).
“Both diesel and petrol prices will thus rise further from record-high levels, but significantly less so than expected earlier in March. The estimated R6 billion in foregone tax revenue for the two months because of the lower fuel levy is expected to be made up by the sale of strategic crude oil reserves,” it said.
“Government is aiming to benefit from current high(er) prices with the sale and hopes that oil prices would have come down by June when the levy reduction ends.”
Last week, the oil price moved sharply lower after the US announced it would release one million barrels per day from its strategic reserves from May.
2. Nersa proposes increase:
In a discussion document published on its website, energy regulator Nersa is proposing an average increase of 7.47% in municipal electricity tariffs from July 1.
For the coming financial year, it proposes the continued use of the historic method of tariff setting by providing a guideline to municipalities of the percentage increase to be implemented compared to existing tariffs, as well as tariff benchmarks for different costumer categories.
An application by a number of intensive users in Madibeng to set aside Nersa’s approval of the municipality’s industrial tariffs for the past several years was postponed indefinitely in the High Court in Pretoria on March 24 after the court heard argument on some technical points.
In another matter the business chambers of Nelson Mandela Bay and Pietermaritzburg are challenging Nersa’s decision last year to use the same methodology to set municipal tariffs.
Both challenges are largely based on the contention that Nersa is failing to base such tariffs on the efficient cost plus a reasonable margin, as required by law.
Nersa is opposing both applications.
During a recent meeting of Nersa’s electricity sub-committee Nomfundo Maseti, one of the most experienced regulator members, conceded that this practice falls short in terms of the law.
The regulator hopes to receive more compliant studies in the coming financial year and says it will implement a drive towards proper cost-of-supply data in parallel with the guideline and benchmark methodology.
It emphasises that the planned adoption of a new methodology in the next financial year will not do away with the need for proper cost-of-supply studies.
In calculating the municipal guideline, Nersa uses the following financial indicators:
Stakeholders are requested to submit written comment by April 22 and Nersa hopes to finalise the guideline and benchmarks by May 11. Due to time pressure, there will be no public hearings on the matter.
Thereafter municipalities must submit their tariff applications. Those applications that exceed the guideline will be submitted to a public hearing on June 8 and Nersa hopes to finalise all municipal tariff determinations by June 15 for implementation on July 1.
3. Gas investments harmful:
Prioritising gas investments in the near term could become a “costly mistake” South African consumers will have to bear, according to a new report.
This week, the International Institute for Sustainable Development (IISD) released its study Gas Pressure: Exploring the case for gas-fired power in South Africa, which indicates that the development of the gas industry may not be warranted until at least 2035.
According to the report, gas would be a too-costly investment and would be as harmful to the climate as coal.
Introducing 3 000 MW of gas capacity and gas supply by 2030 – aligned to the Integrated Resources Plan (IRP) of 2019 would cost at least R47 billion, according to the IISD. As of March 2022, the SA government plans at least 14 000 MW of gas to power projects – more than a third (36%) of Eskom’s coal fleet.
The researchers assert that this money would be wasted as there are cheaper, low-carbon alternatives in the market – namely renewable energy and battery storage technology.
“The risks associated with gas are increasing, while the alternatives to gas are rapidly improving. Since gas is not needed in the power sector until at least 2035, deliberations about the start of a gas-to-power sector should be shelved until at least 2030,” said Richard Halsey, a policy advisor at the IISD and co-author of the report.
“When the government reassesses gas investments at the end of the decade, based on the availability and cost of alternative technologies such as green hydrogen, it is likely that there will be no logical role for gas in the mix,” Halsey added.
The IISD further critiques government’s motives for pushing the development of gas-to-power, as is seen by the inclusion of such projects in the Risk Mitigation Independent Power Producer Procurement Programme (RMI4P). According to the RMI4P, gas is to provide bulk power supply, as opposed to just meet peaking demand requirements or to balance the system, the report indicated.
While Mineral Resources and Energy Minister Gwede Mantashe has expressed optimism about the economic benefits of developing the domestic gas industry, the researchers question whether this is even warranted. In the report, researchers highlight that wind and solar energy are the cheapest sources of bulk power supply. They also point out that battery storage is also considered the “lowest-cost” power to meet peaking demand.
They even suggest that the existing electricity system – which is reliant on coal – be used to balance out supply and demand for the short to medium term, instead of investment in new gas infrastructure.
4. SARS collected R1.5 trillion:
The South African Revenue Service has collected more than R1.5 trillion in revenue.
This a 25% improvement over the previous year and a 15% increase over the last year prior to the Covidpandemic. Over the same period, SARS also paid out its highest amount in tax refunds since it was established 25 years ago.
Commissioner Edward Kieswetter says that it will not hesitate to go after any person or entity that does not comply with tax returns.
President Cyril Ramaphosa also cautioned that SARS will be ramping up its capacity to target those taxpayers who are not compliant.
“SARS is taking the wind out of the sails of tax dodgers, beneficiaries of the proceeds of crime, and those involved in corrupt activities. It is well-established that ‘the taxman’ is one of the most efficient tools to combat corruption.
“In cases where an individual’s lifestyle does not match what they declare, SARS has been conducting lifestyle audits. In the last year, SARS has completed lifestyle audits that resulted in the collection of a further R474 million.”
The commissioner hardened his position to go after high-profile tax defaulters when responding to a question on whether he has been lenient to entities such as the ANC.
He has given the ANC a request to pay its overdue tax bill, which is just over R100 million or have its assets attached.
5. World Bank to assist in investment:
The World Bank, which is hopeful of a new relationship with South Africa, is working with Eskom and Transnet to support projects that can improve South Africa’s investment potential, Vice President for East and Southern Africa Hafez Ghanem said in an interview on Sunday.
This week, Ghanem will hold discussions with the National Treasury and other state-owned entities, noting that these groups could benefit from the Bank’s technical expertise and funding.
The Treasury secured its first loan for budget support from the World Bank in January for $750m (about R10.95 billion) at an interest rate of less than 2%.