SAPOA recently submitted comments to the National Energy Regulator of South Africa (NERSA) regarding the Municipal Electricity Tariff Applications for 2025/26.
The core concerns raised in the submission are:
Unsustainable Electricity Tariff Increases:
SAPOA highlights that proposed municipal electricity tariff increases are significantly higher than the inflation rate, with some municipalities requesting increases nearly triple the annual inflation rate (e.g., City of Tshwane at 10.2% and City of Johannesburg at 12.74% against a 2024 average inflation rate of 4.4%). This is deemed unsustainable for commercial properties and their tenants.
Impact on Commercial Leases:
Commercial lease agreements typically pass utility costs, including electricity, to tenants. When occupancy costs exceed approximately 25% of a tenant’s monthly turnover, particularly in retail, it can lead to financial hardship, lease non-renewals, or demands for lower rentals, ultimately affecting landlords’ ability to keep buildings occupied.
Operating Costs vs. Gross Income:
SAPOA’s Operating Costs Report for January-June 2024 showed that variable recoveries (water, electricity, property rates) increased by 11.2% year-on-year, while basic rentals increased by only 1.6%. Electricity costs are the single biggest contributor to overall operating costs, accounting for 29%, and municipal charges (rates, electricity, water) comprise 59.2% of total operating costs.
Alarmingly, operating costs are increasing faster than landlords’ gross income, leading to less disposable income for property owners. Industrial properties are particularly hard hit, with operating costs increasing by 13.7% year-on-year.
Municipal Financial Mismanagement:
The Auditor General’s Consolidated General Report on Local Government Audit Outcomes 2023/24 paints a bleak picture of municipal finances, citing issues like failing service delivery and poor financial management. Significant revenue losses are attributed to water and electricity losses due to infrastructure neglect (R37.28 billion), and weak revenue management leading to electricity distribution losses.
Metropolitan municipalities experienced an average of 18% electricity losses, estimated at R14.52 billion, largely due to inadequate infrastructure maintenance and illegal connections. Merely increasing tariffs without addressing these underlying problems will not resolve municipalities’ funding issues.
Lack of Cost of Supply Studies:
NERSA is legally obliged to consider a municipality’s cost of supply when determining tariff increases, as per a July 2024 Gauteng High Court order. However, SAPOA noted that a substantial number of municipalities, including some of the metros such as Buffalo City and City of Cape Town, have not made these studies available on NERSA’s website, hindering meaningful public participation.
Flawed Public Participation Process:
SAPOA argues that the public participation process is procedurally unfair. NERSA published tariff applications for 172 municipalities within a short timeframe (less than six weeks). The complexity and variation in tariff components across municipalities make detailed comment extremely difficult. Furthermore, NERSA’s decision to deviate from a full consultation process (i.e., not holding public hearings) without adequate justification under PAJA may render the tariff determinations procedurally flawed. Additionally, approximately one-third of all municipalities have not yet submitted their proposed tariffs for 2025/26, leaving no time for public participation with regard to these municipalities.
SAPOA’s Requests:
- Not grant any municipal tariff applications until a meaningful public participation process is completed, allowing sufficient time for detailed evaluation and public hearings.
- If public hearings are deemed unnecessary, limit electricity tariff increases to no more than 5%, which is still well above the current and projected inflation rate.