Jacob Maroga, CEO Eskom
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Save power or else, warns Eskom
Brendan Ryan
Posted: Thu, 17 Jul 2008

[miningmx.com] -- ESKOM has stabilised South Africa’s immediate power supply situation but the medium term outlook to 2013 remains grim despite the new build programme.

Releasing the utility’s 2008 annual report today in Johannesburg, Eskom CEO Jacob Maroga described the nation as “being at a crossroads.”

He indicated Eskom would have no reserve generating margin from about 2011 to 2013 unless the country saved between 5% and 10% of its current total power usage.

This is despite the fact that the first generating set from the 4,788MW Medupi power station near Lephalale is supposed to kick in during the first quarter of 2012.

That should be followed by the first generating set from the 4,818MW “Project Bravo” station near Witbank which is scheduled to come on line during 2013.

Eskom needs to establish a 15% reserve margin to be able to cope with unexpected problems such as those which crippled it in January.

It last achieved this in 2003 when the margin was 18.1% but that had dropped to 5.6% for 2007.

Maroga indicated that relying purely on Eskom’s new build programme to solve the electricity supply problem would not pay off until about 2015 when the reserve margin would reach around 8%.

In the interim Eskom’s reserve margin would turn negative from the end of 2010 and hit minus 4% in 2012.

But achieving a 10% reduction in the country’s total power demand would push the margin back to 16% this year and 18% in 2009.

Maroga pointed out that, so far, up to 4% of energy savings had been achieved against forecast thanks mainly to Eskom’s key industrial customers which had saved up to 6% against the forecast demand in June this year.

The extent to which the nation saves electricity will also determine how much power Eskom will be able to allocate to proposed new mining and industrial projects over the next eight years which have not yet been guaranteed supplies by Eskom.

These include a string of proposed new platinum and base metal mines and smelters. Development of these projects will be crucial in determining the level of growth and job creation the South African economy will be able to generate over this period.

Eskom was supposed to have decided during June how much power it would be able to allocate to new users over this period and drawn up a directive laying out the parameters it would apply in deciding who got what spare power.

Asked about this Maroga said Eskom had not yet determined how much power it would be able to allocate and also that this would depend on the level of power savings achieved.

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Companies that will be affected by the outcome of this include, amongst many others, Braemore Resources and Impala Platinum (Implats).

Implats must decide by the year-end whether to start shaft-sinking at its proposed Leeuwkop mine near Rustenburg. The group has been guaranteed enough power to sink the shafts and develop the mine – which will cost some R3bn – but it has not been guaranteed the 60MW it needs to operate the mine.

Leeuwkop is due to start production from about 2012/2013 – when Medupi and Bravo should kick in – but any delays to the complex construction schedules of these behemoth power stations could have severe financial implications for Implats if it opts to go ahead with Leeuwkop.

Asked whether Eskom was being optimistic about its construction schedules, Maroga replied, “We are working on the assumption that we will make these timelines but, if they shift, then the reserve margin position will worsen. “

Many platinum juniors requiring around 30MW to run their mines are making plans to supply their own power with a popular option being generating sets using heavy fuel oil.

Braemore Resources executive director David Russell said this week: “Our attitude to Eskom is that we don’t believe them and we will not be dependent on them. Construction of the proposed 35MW smelter is scheduled from 2012 which is a critical period in terms of Eskom’s new supply programme.”

First prize is still to get power from Eskom because it would be cheaper than using generating sets and also avoid the extra capital expenditure.

Arguments advanced by mining companies to get preference from Eskom include the national interest and employment opportunities.

Braemore and Ridge Mining, which has the backing of the IDC for its proposed base metals and platinum group metals smelter, both reckon their smelters have broader benefits for the platinum sector.

Wesizwe Platinum CEO Michael Solomon told the RBC Capital Markets platinum conference in London in May that, “given the situation in South Africa, it is unlikely that a mine like ourselves creating some 3,500 new jobs will not be at the head of the queue when it comes to getting power.”