Eskom – Buying local may mean higher tariffs

Eskom’s huge procurement programme has great potential to stimulate local industry, however, the state-owned utility has warned that this comes at a price – higher electricity tariffs.

The cost of procuring locally for the utility’s power station building programme has been increased by among other things the high cost of local inputs such as steel, cement and chemicals.

Eskom COO Brian Dames said in Parliament in April that an option for procuring from “alternative, established suppliers” must to be available to ensure the continued operation of Eskom’s capital programme.

Eskom was among a group of state-owned enterprises which briefed Parliament’s trade and industry committee on ways business could contribute to achieving the goals of government’s new industrial policy action plan, which seeks to leverage the Procurement spend of state-owned entities to foster local business.

Eskom told the committee that establishing new industries would entail additional cost in investment and skills development in the immediate future. It said that a portion of South Africa’s electricity pricing reflects this cost of local industry establishment.

South Africa’s capital expansion could be procured internationally at lower cost but national imperatives guide high localisation, which adds a cost premium, said a spokesperson.

Eskom has established a procurement process to facilitate localisation, empowerment, job creation and skills and industry development. The utility would also source about 57% of its procurement locally.

Dames said Eskom’s long-term plans for future “fleet procurement” — staggering the purchase of a range of items over a long period to ensure sustainability of local industries, as required by the industrial policy action plan — first required clarity on South Africa’s future energy mix and its own funding model.

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