Eskom, inflation and early onset dementia

Everyone has totally lost the plot.

The proportion of people who speak sense has declined to the lowest level recorded since ever.

“If Eskom puts up its prices too high we’ll have higher inflation. Inflation is bad therefore Eskom shouldn’t put up electricity prices so much.”

Oh really? What happens to the cost of producing electricity when Eskom puts up its prices by 16% rather than 8%? Nothing. Well actually the cost goes down, but then I’m being sneaky – raising the price will reduce consumption, which in turn will decrease the total amount of electricity produced, thus reducing the aggregate cost of electricity production. Yes, it’s sneaky because we all knew I meant the “cost per unit” of electricity.

But wait, if we consume less electricity, Eskom presumably would have to use less gas-turbine powered emergency and oh-so-very-expensive sources of electricity to fill in at peak times. So just maybe the cost per unit of electricity would go down if Eskom were allowed to raise it’s prices by 16% and not 8%.

Another good way to lower inflation would be for government to add a 1% subsidy on everything this year. Everything will be 1% cheaper because you mail (fax?) your receipts to Pravin and Government will mail you a postal order for 1% of the value back in.  Instantly effective prices are 1% lower and inflation is more under control.

Hell, why stop at 1%? Let’s have a 2% reduction.  And a further 2% next year and so on.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.