MIYELANI HOLENI: City Power’s R200 Prepaid charge – yet another struggle for the marginalised

Benjamin Franklin’s famous words, “In this world nothing can be said to be certain, except death and taxes,” resonate deeply with South Africans, especially after the recent election.

Despite the hopes pinned on the May 29 elections, life continues unchanged for many, with economic challenges persisting.

The reality of these challenges hit hard with the announcements of municipal tariff increases effective July 1, following earlier price hikes on April 1. These increases exacerbate the rising cost of food, bank fees, and other essential goods and services, affecting every South African household.

Municipal rate increases highlight the disparity between service delivery and quality. While municipalities claim expanded access to basic services, the reality on the ground is starkly different. Consumers face stagnant salaries and rampant inflation, which, combined with these rate hikes, place an immense financial strain on already vulnerable households. The disconnect between the cost of services and their delivery is increasingly evident.

The average South African struggles to meet daily obligations amid severe economic strain. Prices for electricity, water, sewer, refuse collection, property rates, and other municipal tariffs have reached unprecedented levels.

Since the onset of load shedding in 2008, electricity prices have surged by 450%, far outpacing the 98% inflation over the same period. The National Energy Regulator of South Africa (NERSA) approved price hikes of 18.65% for 2023/24 and 12.74% starting April 2024, raising the average electricity tariff from R1.84 to R2.07 per kilowatt-hour (kWh).

Cities like Cape Town and Johannesburg have seen substantial increases, with Cape Town's rates rising 17.6% in 2023 and 11.8% in 2024, making it the most expensive. Johannesburg followed with a 14.97% increase in 2023 and 10.7% in 2024, while Nelson Mandela Bay recorded the steepest hike at 15.7% in 2024.

In addition to these rate hikes, the City of Johannesburg’s City Power has begun charging prepaid customers a total of R200, excluding value-added tax (VAT) per month (R230 including VAT), effective 1 July.

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This move follows numerous attempts to implement fixed charges to cover the cost of distributing electricity to prepaid customers, last attempted in 2021. Until now, the city has not recovered most of the underlying costs of providing the network to its 250,000 prepaid residential customers.

This situation has resulted in postpaid/credit customers paying among the highest rates for electricity in the country, while prepaid customers pay significantly less, effectively being subsidised by the former.

From July, postpaid customers across most domestic tariff options will pay R985.37 per month for City Power’s capacity charge (R719 and R791 on basic connections) and R244.20 as a service charge, totalling R1,230 in fixed charges, before consuming a single kilowatt.

City Power acknowledges this disparity, indicating that fixed charges for prepaid customers will increase sharply in the coming years to align with conventional tariffs.

To shield lower-income ('indigent') households from this charge, City Power has categorised prepaid customers into two groups: prepaid (low) and prepaid (high). The prepaid (low) category is not yet subjected to fixed charges. However, to prevent high-usage customers from migrating to this tariff to avoid higher costs, City Power has increased the tariff for any usage above 500kWh by more than the average increase, with a 17.72% change compared to 12.72% on the prepaid (high) tariff.

Households must be registered as indigent (earning less than R6,000 per month) to qualify for this tariff.

Electricity is essential for every household for cooking, lighting, heating, and cooling. Despite municipalities offering free basic electricity of 50 kWh to indigent households, this amount is barely sufficient to keep the lights on.

South Africa, once proud of being among the cheapest coal and electricity producers in the world, has lost that status. In 2001, it sold a unit of electricity at an average price of 18.2 c/kWh, but that is no longer the case. Affordable electricity is crucial for attracting foreign direct investment and driving growth in mining, manufacturing, and industrial activity.

Addressing these issues requires significant investment in renewable energy sources. Despite higher generation costs compared to coal, renewable energy offers a sustainable path forward. Municipalities need to transition from being mere electricity retailers to generators, potentially building microgrids to power households and generate revenue. This shift could create a new renewable energy industry and value chain, introducing new players and services.

Municipalities must look beyond the traditional big five revenue sources (electricity, water, sewer, refuse collection, and property rates) to diversify their income streams.

By attracting investment, fostering inclusive growth, and encouraging local economic development, municipalities can build a stronger, more predictable revenue base. This approach reduces reliance on steep price hikes and protects consumers from financial shocks.

The disconnect between municipal rate increases and service delivery in South Africa underscores the urgent need for reform. By prioritising quality service provision and implementing holistic economic policies, municipalities can build a future where all South Africans can thrive.

Benjamin Franklin’s words remind us that while prices may rise, quality service delivery can justify these increases, ensuring consumer satisfaction and preventing revolt.

Municipalities must run their service delivery imperatives as businesses, recognising customer needs while generating profits to improve service levels.

This approach can transform municipal service delivery, ensuring that South Africans receive the quality services they deserve.