[miningmx.com] — IF it was indeed Standard Bank chairman Derek Cooper who suggested the closure of a couple of lines of a BHP Billiton aluminium smelter as a good way to save electricity, he deserves a medal rather than being threatened with the loss of BHP’s alleged R2.4bn/year business.
Those monsters are just about the least appropriate form of investment for South Africa’s stage of economic development.
That the Coega development apparently relies on one of them for its viability is a major reason that there are those among us (as one of my former colleagues in the ANC used to say) who doubt the rationale of this venture.
Aluminium smelters use imported raw materials, create few permanent jobs and raise major environmental issues. As both their supporters and critics concede, they’re in effect a way of exporting electricity – which is their largest single cost component – and in South Africa’s case amounts to exporting coal.
That was all very well when we had power to burn. Given that the capital had already been spent, and would otherwise be wasted, as long as the electricity was sold at above marginal cost – even if way below the price charged most domestic consumers – there was no great harm in using it to power these pseudo-sophisticated signs of economic prosperity.
The equation changed when South Africa started to use its spare capacity, in spite of its disappointingly low overall economic growth rate. I won’t go back into that debate, but the immediate relevance is that, regardless of whether the final decision lay with Eskom or the government, it was highly irresponsible to sign a long-term contract to supply power for a possible smelter at Coega – at favourable prices – at a time when it was well known to Eskom, and should have been known to the government, that we were on the brink of a power shortage.
While I recently criticised the senior Eskom spokesman who floated the idea that the public corporation might prefer to incur penalty clauses rather than fulfil that contract, which would create totally the wrong image in our quest to attract foreign investment, sadly – and on strictly economic criteria – there’s much to be said for that argument.
I suspect that if all South Africa’s aluminium smelting capacity were closed down – and I’m not suggesting that we should take so drastic a step – we’d still be enjoying the undeserved benefits of all that apartheid-era overinvestment.
It’s ironic that this wasteful use of coal is being condoned – indeed, actively promoted – by the authorities at a time when our direct exports of coal are hampered by infrastructural bottlenecks.
Relatively modest capex on, say, rail and shipping facilities associated with the Richards Bay Coal Terminal would be far more beneficial for both the coal-mining sector and the economy.
There’s a further point. In a democracy it’s the right of every individual to express views without fear or favour. Cooper (or whoever) wasn’t even talking in an open forum but at a high-level official exploration of the problem.
His public responsibility to raise relevant issues outweighed any need to placate individual bank customers.
Moreover, there’s not the slightest shred of evidence – how could there be? – that that statement in any way affects the efficiency with which Standard Bank handles BHP’s business. That should surely be the yardstick by which BHP appoints suppliers?
Its actual behaviour is akin to that of government departments that threaten to withhold advertising from media organs that criticise them and can best be dismissed as knee-jerk hysteria.
