[miningmx.com] – SOUTH Africa’s Chamber of Mines (CoM) has called on the country’s government to consider a recapitalisation of Eskom as the proposed 24% increase in the tariff represented “a tipping point” for the sector.
The chamber’s comments were made in response to Eskom’s application to the National Energy Regulator of South Africa (Nersa) for a lift in the tariff, a turn of events that has already drawn forthright responses from national and global market participants.
Economists Raymond Parsons and Waldo Krugell, of North West University, and Professor Gavin Keeton, of Rhodes University, have strongly urged Nersa to take a conservative approach to Eskom’s latest application for further tariff increases.
In a separate submission, the International Monetary Fund (IMF) said higher tariffs were necessary “… to make Eskom financially sustainable” but it added that Eskom ought to improve its cost containment efforts including its procurement practices.
Nersa has this year already allowed an increase in the tariff to 12.7%, but is now facing an application for a further 9.5% increase representing the R1bn per month cost of buying diesel for its open cycle gas turbines (OCGT) and to pay for the impact of the carbon tax that the National Treasury said would be implemented in the 2016 fiscal year.
Eskom added that part of the proceeds from the higher tariff would also be used to pay for energy from independent power producers in terms of its short-term power producer programme (STPPP). “OCGTs and STPPP will be purely used to reduce intensity of load-shedding and the cost to the economy,” said Eskom acting CEO, Brian Molefe today.
Roger Baxter, CEO of the CoM, said today in his organisation’s submission to Nersa that the mining industry’s sustainability would be “… severely compromised should this increase be imposed”.
“What we are saying is that government needs to explore other avenues to raise these funds – we cannot accept that tariff increases are the most appropriate way of dealing with this shortfall at this time,” said Baxter.
“The Chamber therefore encourages government to explore alternative funding mechanisms such as traditional shareholder recapitalisation and to consider the reallocation of the electricity levy revenues,” he said.
Eskom’s request for an increase in the tariff is of particular importance to the country’s precious metals industry where restructuring and retrenchments are beginning to take their toll on the economy.
Anglo American Platinum today announced 420 managerial jobs would be cut at its operations in terms of ongoing restructuring whilst Lonmin said in May some 3,500 jobs would be cut in a cost improvement drive.
Harmony Gold confirmed in the same month that some 3,700 jobs were at risk at its Doornkop facilities whilst jobs would be lost at Kusasalethu, both on the west Rand of Johannesburg.
The gold industry was also in its second day of wage negotiations with unions including the National Union of Mineworkers and the Association of Mineworkers & Construction Union which had tabled demands of between 80% and more than 100% for entry level employees.
“Given the crisis situation the sector finds itself in, with the majority of operations loss-making, this additional electricity tariff increase will place the industry in jeopardy,” said Baxter.
“Further job losses may be sustained as a result of operations scaling back significantly, being placed on care and maintenance or having to close completely,’ he said.
Earlier in the day, the Ferro-Alloy Producers Association of South Africa told the hearing into the tariff application that that Eskom price increases could force a closure and divestment of some smelters and possibly lead to as much as 200,000 job losses in the sector.
“The increase in electricity prices will further increase production costs and lead to the closure of most smelters in South Africa,” said Jacobus Zaayman, a representative from the Ferro-Alloys Producers Association at the public hearing.
In his budget vote address today to the National Council of Provinces – South Africa’s upper house of parliament – mines minister Ngoako Ramatlhodi said that mining right holders should seek to avoid playing “the numbers game” in respect of job losses.
Said Ramatlhodi: “We continue to appeal to mining right holders not to treat the shedding of jobs as a numbers game, but to appreciate the compliance and social aspects of retrenchments”.
“The mining industry is at a tipping point,” said Baxter who added: “… the long-term negative economic impact of these [Eskom’s] proposed increases would result in damage to investor confidence, employment, capital expenditure and to the manufacturing sectors supporting the mining industry”.
Since 2008 electricity tariffs have increased by 300% in South Africa.
