SA: Power crisis threatens to sink major projects
CONCERN is growing that SA’s electricity crisis could tarnish its appeal to investors, after news that several new mining projects and a ferrochrome expansion project had been put on the back burner because Eskom lacked the power needed to run them.
A R22bn aluminium smelter — the biggest foreign direct investment secured by the country to date — also may be under threat, with Eskom confirming yesterday it may be delayed by supply constraints.
Chamber of Mines assistant adviser Dick Kruger said he could not give details, but there were platinum projects for which the mining companies had been told there was no power available.
A ferrochrome expansion plan had also been halted.
He said final decisions on new mining ventures were now likely to be delayed until there was certainty on power supply in 2013 — when Medupi, the first new coal-fired plant, comes on stream.
“We are in for a very hard five years,” Kruger said.
Eskom finance director Bongani Nqwababa said the utility wanted to dissuade the government from taking on new energy-intensive projects before 2013, when its R300bn five-year expansion plan would be complete.
“It’s a question of supply and demand. It would be irresponsible now to aggressively pursue energy-intensive businesses. A balance has to be found, that is the reality,” he said.
Business Unity SA said yesterday it was alarmed at the news and a spate of power blackouts had already cost business “millions”. It was also eroding international confidence in SA as an investment destination, the group said.
“We are seeking an urgent meeting with Eskom and government in order to determine the extent of the problem and to have a clear, transparent and unequivocal plan going forward,” it said.
Minerals and Energy Minister Buyelwa Sonjica acknowledged yesterday SA was experiencing a serious problem, but moved to calm the uproar over power cuts, which have hit industries, offices and homes in the past week.
“I wish to put it to the country that we do have an acute problem of supply at the moment. I wish also to emphasise that we have a low electricity reserve margin,” she said.
But she said the government was considering a number of “interventions” to ease the crisis, which would be discussed at a cabinet meeting next week. “There’s no need to panic about future investments,” she said.
Nqwababa said projects already in the pipeline would go ahead, but construction of Rio Tinto’s Alcan aluminium smelter might be rescheduled. “We need to make sure the pace of the project and the pace of our commitments match. If we can’t meet our commitments then we’ll ask them to reschedule.”
With construction set to start in the second half of this year, the project is the biggest and most advanced in Rio Tinto’s pipeline.
Spokesman Robert Valdmanis said yesterday the smelter was going ahead. When pressed, he said: “If (the project) gets delayed its prioritisation may change and no one knows what the outcome of that may be. I don’t want to speculate beyond that.”
For projects under construction, mining firms had secured electricity supply at the outset and Eskom would stick to its agreements.
Kruger said SA faced a magnified power squeeze this week, when supply was constricted by maintenance that would help through the winter. But he believed the crisis would be worse this time next year.
Bongani said Eskom aimed to add an average of 2000MW of electricity each year, doubling capacity to 80000MW by 2025.
This assumed that the economy would grow at an average 6% a year, and supply would be threatened only if it exceeded those expectations, he said. Faster growth than expected has been one of the main reasons for the power crisis, with SA clocking up a pace of 5,4% in 2006, a 25-year peak.
The government aims to boost growth to 6% by 2010 to help create jobs, but there is concern the power supply crunch will thwart that goal.
Kruger said demand would continue to outstrip capacity. Even if the economy slowed this year, appetite from households and mines would remain robust. The biggest electricity users are redistributors — mainly municipalities — followed by heavy industry and the mining sector.
Standard Bank group economist Goolam Ballim played down the crisis, saying it was just one constraint . “I’m not sure investor confidence will be downgraded but it will temper confidence and shave off some of the earnings growth expectations for South African equities.
