Eskom's R54 billion settlement: what it means for South African households

Experts are warning that South Africans should prepare to sit with even heavier electricity bills in the coming years, as the controversial R54 billion settlement between Eskom and the National Energy Regulator of South Africa (NERSA) locks in tariff hikes that will hit both households and municipalities.

The settlement, reached in July after Eskom took NERSA’s sixth Multi-Year Price Determination (MYPD6) decision on review, allows Eskom to recover billions in additional revenue after errors were discovered in the regulator’s calculations. 

The phased recovery will translate into extra increases of 3.4% in 2026/27 and 2.64% in 2027/28, pushing total tariff hikes for those years to 8.76% and 8.83% respectively.

While NERSA insists the agreement is “a fair and balanced resolution,” consumer groups, municipalities, and energy experts have blasted the deal, saying it unfairly shifts the cost of Eskom’s inefficiencies and mismanagement onto ordinary South Africans.

Charles Hlebela, NERSA’s Head of Communication, said the settlement followed Eskom’s review application after a R107 billion revenue shortfall was identified. 

“Following an assessment of Eskom’s review application, NERSA identified errors that resulted in underestimation in certain components of Eskom’s application. After rectifying these errors, NERSA concluded that Eskom was entitled to an additional R54 billion over the three-year MYPD6 period, an amount substantially lower than Eskom’s original claim of R107 billion,” he explained.

He stressed that the agreement avoided “prolonged litigation” and phased the increases to “mitigate immediate tariff shocks to consumers.”

NERSA full-time regulator member for electricity, Nomfundo Maseti, said, "This settlement agreement represents a fair and balanced resolution. It safeguards the interests of South African electricity consumers while addressing Eskom’s legitimate revenue requirements to ensure operational sustainability.”

The South African Local Government Association (SALGA) expressed alarm, warning that the hikes would deepen poverty and cripple already stretched municipal finances. 

“These tariff hikes are not just numbers on a page, they risk pushing households into deeper poverty, crippling municipal finances, and widening inequality,” said SALGA  president  Bheke Stofile.

SALGA highlighted that municipalities rely heavily on electricity revenues to cross-subsidise other services, and steeper tariffs often result in illegal connections, reduced compliance, and heightened community dissatisfaction.

The Association called for urgent reforms, including government subsidies to protect poor households and vulnerable municipalities, acceleration of electricity sector reform and Eskom restructuring, and a tariff framework that balances Eskom’s needs with consumer affordability. “Passing the cost of mismanagement, historic inefficiencies, and policy delays onto consumers cannot be the solution,” SALGA stressed.

Activist group STOP COCT said the hikes prove consumers are continually punished for Eskom’s inefficiencies.

“STOP COCT regularly receives compelling complaints from members of the public not being able to foot Eskom and municipalities' huge electricity bills,” said founder Sandra Dickson.

She warned: “Without urgent measures, tariff hikes alone will definitely increase hardship in every household in the country.”

Dickson added that households turning to renewables should not face additional penalties: “Households should not be punished with fixed costs for implementing solar solutions in their homes.” She said Eskom and municipalities should incentivise rather than penalise such efforts.

Energy expert and Professor at the Graduate School of Technology Management at the Univerity of Pretoria, David Walwyn said NERSA’s admission of mistakes in its determinations raises serious questions about its competence.

“It is inexcusable that NERSA should admit to a mistake in such a critical task. The organisation needs to make its staff accountable and reassure South Africans that it knows what it is doing,” Walwyn said.

He explained that Eskom’s inflated asset base including corruption and overspending at Medupi and Kusile lies at the heart of the controversy.

“We all know that Medupi and Kusile cost several hundred billions of Rands more than the initial budget, and that this over expenditure was due to corruption. Why should the consumer pay for Eskom’s inefficiencies and criminality?”

Walwyn warned that rising tariffs, already double inflation, risk turning electricity into “a luxury in low-income households” and fuelling wider inflation in food, clothing, and essentials. 

“The Minister of Electricity and Energy, Minister Ramokgopa, has on several occasions lamented growing energy poverty due to rising prices. Electricity is a basic human need but is becoming a luxury in low income households. Moreover, higher electricity prices lead to consumer inflation. 

“We all pay more, not just for energy, but for food, clothing and other essential items.”

Former Eskom executive and energy expert Professor Vally Padayachee also flagged the risks of loading costs onto consumers. 

“The Eskom–NERSA settlement reflects a complex balancing act between ensuring Eskom's financial sustainability and protecting consumers from excessive price increases,” he said.

But Padayachee warned that the settlement risks worsening affordability. “Tariff hikes of this magnitude raise sustainability concerns. They may provide short-term relief to Eskom's fiscal needs, but in the long run, continued price increases could lead to worse affordability for consumers. 

“As electricity prices rise, there is a real risk that payment compliance will deteriorate, especially among low-income households who are most vulnerable to economic fluctuations. The potential for increased indebtedness among consumers could also strain municipal finances, further destabilizing the electricity distribution system across the country.”

He also called for urgent reform: “To address Eskom’s financial and operational challenges without unduly burdening households and municipalities, alternative solutions should be explored.

“Key options include the regulator NERSA allocating Eskom prudent cost reflective tariffs when Eskom applies for an annual tariff review. Other options include restructuring Eskom to improve operational efficiency and reduce costs, implementing demand-side management programs to optimize electricity consumption, and investing in renewable energy sources that may provide cheaper and more sustainable electricity in the long term.”

Padayachee said that broader reforms were essential to avoid repeating the same crisis.

“I fully agree with SALGA’s call for broader electricity sector reforms. Prioritising specific reforms is essential to create a more resilient electricity supply environment. 

“These should include a comprehensive review of Eskom’s structure to identify inefficiencies, a reassessment of the Free Basic Electricity (FBE) policies to ensure they meet the needs of the most vulnerable populations, and the exploration of decentralised energy solutions that allow for greater community participation and investment in local energy resources.”

tracy-lynn.ruiters@inl.co.za

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