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Sep 02, 2011

02/09/2011 (On-The-Air)

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It’s that time again on a Friday when AMLive presents another Update From The Coal-Face with Terence Creamer, editor of Engineering News and a contributing editor at Mining Weekly.

De Gouveia: Power-intensive companies in South Africa are beginning to openly express concern about the current tariff trajectory, which they claim could undermine existing investments and forestall yet others.

Creamer: The Energy Intensive Users Group, with includes South Africa’s largest mining and industrial business in South Africa, has done some work on what it calls South Africa’s power price path.

  • From this, they conclude that the country is approaching an electricity price ‘tipping point’ and that unless coordinated policy, regulatory and investment actions are taken to moderate the rate of increase, the prospects for energy-intensive business activity in South Africa will become increasingly bleak.
  • In addition, the increases could well undermine the current aspiration to add more value to South African-produced minerals ahead of export, which is one of the objectives of the New Growth Path.
  • They point out that average real prices have already more or less doubled since the crisis of 2008 from 25c/kWh to 50c/kWh.
  • They also calculate that if Eskom were to again raise tariffs at the rate of 25% a year, which have been approved form the period 2010 to 2013, in 2014 and 2015, the price could breach the 100 c/kWh level in the coming decade.
  • This level, they says is not sustainable and will lead to the closure of smelters and furnaces. They argue that the price should not rise above 80c/kWh.
  • The main target of the lobbying effort is arguably Nersa and the next tariff round, which is likely to be submitted for consideration by Eskom early next year for implementation on April 1, 2013.
  • Eskom says it will apply its mind not only to the need for healthy financial ratios, but the effect of rising prices on demand and the economy as a whole.
  • Nersa has said its methodology is flexible enough to cater form changed circumstances, noting that the 3x25% increases were set against the backdrop of Eskom’s financial challenges precipitated by prices that stayed too low for too long.
  • The EIUG says a balance must be struck between sustaining Eskom’s credit rating and ensuring power price affordability.

De Gouveia: Power prices aside, there have been some developments on the beneficiation policy front this week.

Creamer: Yes, the issue of adding value to South Africa’s minerals ahead of export has been knocking around for years if not decades.

  • But steadily it issue is coming to the fore as a strategic economic imperative that is supported by policy and probably future legislation.
  • The policy support comes from the New Growth Path and the Industrial Policy Action Plan. And, the development this week relates to the nature of the possible legislative support.
  • This could come from amendments to the Mineral and Petroleum Resources Development Act, or MPRDA.We don’t have full details yet, but Cabinet has already approved the minerals beneficiation framework and there will now be a process of consultation with stakeholders to firm up on this framework by November.
  • Special adviser to the Minister and former DG, Sandile Nogxina told Australian investors in Perth this week that the framework would outline the manner in which an orderly development of the country’s mineral value chains will occur.
  • He also emphasised that it would encourage the labour-absorptive industries rather than simply the capital-intensive beneficiation practices of the past.
  • An amendment to the MPRDA will seek to align the Act with the beneficiation strategy, including possibly creating stipulations to ensure that there is sufficient feedstock available for such activity.
  • But as you heard earlier, the policy and the legislative environment will only take us so far. We will also need a conducive power price environment, new skills, higher investor confidence and possibly a more competitive exchange rate to really upscale mineral beneficiation.

De Gouveia: There have also been new developments on the renewable energy front since we spoke last week.

Creamer: Last week, I told you that developers were going through tender documentation related to the first 3 725 MW of renewable energy capacity that the Department of Energy wants delivered into the grid between 2012 and 2016.

  • This will involve an investment of between $10-billion and $12-billion, into onshore wind, solar photovoltaic, solar concentrating power, biomass, biogas, landfill gas, small hydro and other smaller projects of less 5 MW.
  • And some of this investment will flow in the form of much needed foreign direct investment.
  • Well, this week, the Department of Energy reported that more than 400 companies had paid the R15 000 fee to receive the bidding documentation, which has been made available since August 3.
  • Of those, it estimates that some 270 are potential Independent Power Producer bidders, with the balance being financiers and equipment suppliers.
  • This has given government hope that the tender will be fully subscribed at the time of final submissions, which has been set for November 4.
  • Preferred bidders will then be selected and will have to enter into negotiations with Eskom for a power purchase agreement and grid connectivity.
  • But they will also need to meet a range of economic development stipulations relating to such things job creation, local content and community upliftment.
  • A financial closure deadline has also been set for the middle of next year and actual construction should follow thereafter.

De Gouveia: Terence Creamer is editor of Engineering News and a contributing editor at Mining Weekly. Martin Creamer will be back At The Coal-Face at the same time next Friday.

Edited by: Creamer Media Reporter

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