ELECTRICITY COSTS FOR COMMERCIAL TENANTS NOW EQUAL TO MONTHLY RENTAL

Being managing agents of a commercial property portfolio located in both the City of Cape Town and Drakenstein Municipalities, we at Steer & Co have picked up on a rather unbelievable phenomenon where commercial tenants are incurring substantial expenses for the provision of electricity to their leased premises, so substantial that in many cases this monthly electricity expenditure now equals their base rental. J-P Questiaux elaborates in this interesting article.

The greater Cape Town metropole spans Simon's Town to Cape Town's CBD and the Atlantic Seaboard to Durbanville in the north, with services being supplied by the City of Cape Town Municipality; The largest municipality in the Western Cape .

Bordering this is the second largest Western Cape municipality in the form of the Drankenstein Municipality which extends north of Durbanville to include Paarl, Franschoek, Wellington, Gouda and Hermon.

Combined, these two municipalities provide services to approximately 4.9 million people, representing 8.64% of South Africa's 2017 population. The provision of services entails massive expenditure given the infrastructure and maintenance costs involved in such large scale service delivery. This is funded through raising municipal rates and levying consumption charges for water, sewerage, refuse removal, electricity, car and business licensing, development levies, planning approval fees etc .

Of all these municipal-related costs, the glaringly obvious outlier is the cost of electricity for businesses.

The City of Cape Town and Drakenstein Municipalities purchase their power from Eskom at a certain rate and charge consumers within their municipal jurisdiction a rate per kilowatt hour (kWh), which includes the purchasing rate plus a profit margin.

For commercial users, a small power user currently pays the following:

City of Cape Town: R1.76*/kWh plus R61.77 per day per electricity meter for monthly invoiced consumers. Where a prepaid meter is installed, this R61.77 daily rate is added to the R/kWh amount.

Drakenstein Municipality: R2.13/kWh plus a basic monthly fee dependent on the power supplied;

A single phase 40 amp power supply - R259.10

A three phase 100 amp power supply - R2,009.28

A three phase 150 amp power supply - R3,013.92

*All amounts are inclusive of VAT

Irrespective of which municipality you fall under, as a commercial user of electricity you are responsible for exorbitant consumption charges in order to operate your business.

Given our experience in managing a portfolio that includes many commercial, industrial and retail properties an interesting correlation has emerged in both municipal jurisdictions, where the cost of electricity being paid by tenants now equals the rental being charged by landlords . This is particularly evident for large power users such as restaurants, fast food outlets, supermarkets and certain chain stores.

Electricity tariff increases have been at a far higher rate than the inflation rate. This, paired with the ever increasing population growth rate, puts a strain on these municipalities in their provision of basic services.

In just nine years, the total population across these two municipalities has grown by 23% from approximately 3.99 million people, allowing for little scope for slowing the electricity tariff hikes given that new infrastructure must be developed and the existing infrastructure maintained.

The unfortunate reality is that businesses (retail, commercial and industrial) end up carrying a big portion of these costs while operating in an already challenging economic environment.