Eskom woes put brake on growth

050910 Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. South Africa will need 20 gigawatts (GW) of new power generation capacity by 2020 and would require double that amount a decade later to meet rising demand, the country's power utility said September 7, 2009. Picture taken July 17, 2009. REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS)

050910 Electricity pylons carry power from Cape Town's Koeberg nuclear power plant July 17, 2009. South Africa will need 20 gigawatts (GW) of new power generation capacity by 2020 and would require double that amount a decade later to meet rising demand, the country's power utility said September 7, 2009. Picture taken July 17, 2009. REUTERS/Mike Hutchings (SOUTH AFRICA ENERGY BUSINESS)

Published Jul 10, 2013

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Concerns about the security of electricity supply, after Eskom announced a further delay in the commissioning of its Medupi power station, presented another threat to South Africa’s growth forecast as it worsened investor perception, economists said yesterday.

Nicky Weimar, the senior economist at Nedbank, described the shortage of electricity and the “dramatic increase” in the cost over the past few years as “a binding constraint” on the economy.

“Without certainty of supply, businesses can’t plan, can’t invest and the economy can’t grow at more than 3 percent,” Weimar said.

Economists.co.za chief economist Mike Schussler said the uncertainty in power supply had carried on for a long time.

“We are unlikely to see any major new mining operation, any smelter or manufacturing plant. And it’s not only about the international investor. If we want to put together another Iscor, another PetroSA or Sasol, we won’t be able to.”

Eskom said the delay in commissioning unit 6 of Medupi could result in a power supply shortage of 700 megawatts next year.

The timely commissioning of Eskom’s new capacity was critical in the implementation of the National Development Plan. But Schussler said the delays would only affect the early phase of the policy.

On Monday, the Department of Public Enterprises questioned Eskom’s ability to manage the Medupi project, saying the utility had to do some introspection.

The ruling party had also voiced dissatisfaction earlier this year on Eskom chief executive Brian Dames’ heading of the company.

But Schussler said the current management at Eskom inherited a very difficult situation and the problem was multidimensional and not just a management issue.

“Some contractors have the ANC as partners so it becomes difficult for the management to criticise them,” he said.

When the statistics that showed a contraction in South Africa’s manufacturing output were released earlier this year, some economists attributed this to the constrained power supply as Eskom bought back power from manufacturers.

A research note written by three Standard Bank strategists in March said like strike actions, risks in the country’s electricity supply were “rand negative”.

“They threaten the balance of payments not only via investor sentiment impacts, but also via potential direct export impacts,” the strategists said.

The negative impact in the mining sector had not only caused a reduction of output after 2008, as certain operations had closed down.

BHP Billiton closed two potlines at its Bayside aluminium smelter in a bid to reduce its consumption by 10 percent as Eskom had an agreement to interrupt 2 000MW of electricity to smelters every week.

Some companies had to shelve some of their projects.

Tharisa Minerals, which opted to build a ferrochrome smelter in China when it initially planned to build it in Rustenburg, is one example. In 2011, the company chose China because Eskom could not supply all the power required by the smelter until 2018.

Exxaro’s Grootegeluk mine, which has an agreement to supply coal to Medupi, has had to defer its supply even though the building of the mine is almost finished.

“The big lesson that we should take from this is that we need greater diversity in the way we plan and contract for new power because just a small delay has a very big impact,” said Anton Eberhard, an expert on electricity at the UCT Graduate School of Business.

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