Organised business supports high energy users in litigation against NERSA and the NMBM

The Nelson Mandela Bay Business Chamber has been extensively involved with the six of the thirteen companies that make up the High Energy User group through meetings, debates, correspondence and engagements with the Nelson Mandela Bay Municipality (NMBM) and the National Energy Regulator of South Africa (NERSA).

“For the first time, the Nelson Mandela Bay Business Chamber ventures into supportive litigation against NERSA and the NMBM, in the interest of protecting companies in our region from potential closure, the loss of jobs and resulting downward spiral of the Eastern Cape economy,” said David Mertens, spokesperson for the High Energy User Group in the Nelson Mandela Bay Municipality.

“As a co-applicant in the challenge against the manner in which Municipal tariffs are set by NERSA, the Chamber joins the litigation to represent its membership against increasing electricity costs, for the benefit of the broader business community,” continued Mertens.

“The NMBM foundries, comprising Autocast, Borbet and Weir Minerals, are applicants, next to companies such as Shatterprufe, Tenneco and Coca Cola.”

“You might recall that as a group of companies, we intensively engaged for the last two and half years to get better industrial electricity tariffs in our Municipality. Despite the obvious evidence of job losses and financial hardship for the companies, the NMBM decided to ignore our engagement and once again just increased the tariffs last July. NERSA followed by approving the NMBM’s application. This leaves us with another year of industrial electricity tariffs which are 35% above the equivalent Eskom Direct Tariffs.”

“NERSA themselves confessed in a parliamentary hearing in November 2012, that there are “structural and other problems with Municipal tariffs”. They also stated that Municipal Funding through electricity tariffs “has reached a tipping point and needs to be reduced” and that municipalities “do not seem to understand the impact on Industry”.

“Additionally, NERSA commented that; “Municipalities do not have the proper skills”, nor “do they have the proper information” to perform the distribution function. Despite the above, NERSA has failed to deal with this fundamental problem for the 2013 tariff determination for the NMBM.”

“This lack of strategic approach, when it comes to industry, needs to come to an end and unfortunately, industry’s only effective weapon in this battle is litigation.”

The litigants maintain the following:
– That NERSA has no constitutional power to impose a surcharge indirectly, or on behalf of any Municipality;
– In approving the relevant electricity tariffs, NERSA did not consider relevant information, and did not apply its mind;
– That business in Nelson Mandela Bay pays unjustifiably higher rates for electricity compared to business that fall outside of the Nelson Mandela Bay licenced area;
– That no concession is granted to industrial electricity users within the Nelson Mandela Bay Municipality licenced area;
– That the imposition of the Nelson Mandela Bay Municipal tariff did not comply with various legislative requirements, and is in violation of constitutional rights.

“Although the application concerns the NMBM tariffs, it is obviously an application with national relevance as the same arguments are applicable to most municipalities, which in total distribute 40% of the country’s electricity,” explained Mertens.

“The future and imminent impact of the tariff increases will require industries to recover the costs through increasing product and commodity pricing, resulting in the consumer paying more (over and above their home electricity bill), increasing the general cost of living and certain industries could consider foreclosure or relocation to alternate provinces.”

“Current and projected electricity tariffs have a significant adverse economic impact on the continued survival of the manufacturing industry and commercial sector in this region.
The electricity cost to industry in Nelson Mandela Bay is amongst the highest in the world and has reached a tipping point. The more a business depends on energy, the more it will be affected.”

“Municipal mark-ups on the NERSA tariff of up to 50% are a catastrophic reality for industry and business. Energy Intensive Users are already at a point where 950 jobs have been lost and investment has come to a grinding halt. The increase has considerable knock-on effects on the competitiveness, viability and sustainability of businesses, and the ability of industries to retain or even create jobs.”

“We need an electricity price path which will ensure that South African business remains financially viable and creates investment opportunities which attract investors, rather than deters them. One of these catalysts is to provide a sustainable utility, with good quality of supply that remains affordable for all South Africans.

“The Chamber has listed the main arguments in their statements. In the NMBM, we would only pay about 76% of the current tariffs if we were to be supplied by Eskom direct. We are obviously fighting this unfair “surcharge” or “factual taxation” which is levied on municipal electricity users.”

“We are offering our municipality this 76% on the back of this application, meaning we are underpaying in relation to the regulated tariffs.”

“Foundries and other companies in other municipalities might be interested in this litigation as a “copy and paste” version might be applicable for them. We do not expect a quick legal ruling regarding this case, but next year’s tariff determination might also be influenced by the content of this application.”

For further details contact:

David Mertens on TEL: 041 402 8800 or email him on