Apr 13, 2012
Electricity costs remain a concern despite lower 2012/13 tariff increaseBack
Africa|Autocast|Energy Intensive User Group|Eskom|Foundrymen|Industrial|PROJECT|Africa|South Africa|Automotive|Automotive Component Supplier|Electricity|Electricity Tariff Increase|Electricity Tariff Increases|Electricity-intensive Foundry Industry|Energy|Energy Management|Energy Price Increases|Energy Regulator|High Energy User|Manufacturing|Metal|Service|Services|Adrie El Mohamadi|David Mertens|Infrastructure|John Davies|Power|Operations
© Reuse this
The nonprofit organisation, together with the National Foundry Technology Network (NFTN), the Department of Trade and Indus- try (DTI) and industry representatives led by NFTN energy management working group champion David Mertens, who is also cast iron operations and group technical executive director of automotive component supplier Autocast, met with the energy regulator in February to discuss their concerns about the state of the foundry industry as a whole, espe- cially the 25.9% electricity tariff increase, which was scheduled to take effect on April 1.
On March 9, Nersa announced that it was revising the electricity tariff increases for 2012/13 downwards to 16%.
“We’d like to think that we held at least a small measure of persuasion in that,” says Davies, adding, however, that the lower increase will by no means solve the many problems facing the domestic foundry industry.
“What one needs to recognise is that the foundry industry is a fairly high energy user, particularly in the ferrous foundries,” says Davies. “It’s a higher melting point material so more energy is needed to melt the metal.”
He explains that the energy used by foundries can range between 5% and 21% of total costs. Applying a 16% increase to that, in addition to future yearly increases, can, therefore, become a significant cost element.
Davies adds that the 16% increase in Eskom’s tariff is also not necessarily the increase that will be applied by the municipalities.
In 2010, the foundry industry saw energy price increases of up to 49% in the winter months. There have since been numerous forced closures as a result of these steep increases. Four foundries in the Ekurhuleni area alone closed shop in August 2010, he points out.
At the time, Saif’s plan of action was to engage with the Ekurhuleni city council to discuss tariff implementation. “From having been quite combative at first, we ended up understanding the needs of the industry and also the needs of the council,” says Davies.
He states that Saif now understands there are sociopolitical elements involved in the way municipalities collect electricity debt. It is their main revenue for funding other services that they otherwise would not be able to cover. Similarly, the capital expenditure programme dictates that the bulk of the municipalities’ capital is dedicated to households – an area that generates the least revenue.
“It’s a sociopolitical decision and we need to put effect to that. There’s no way we can carry on in South Africa with some homes having no electricity – it’s indefensible. But to do that means you’re taking funding away from other necessary capital and infrastructure renewal and upgrading expenditure.
“That means, effectively, that the service quality to the industrial users, which are subsidising the programme for a low- or no-revenue stream sector of the council, is in decline.”
Another factor that the foundry industry needs to consider is the municipal tariff structure. It has been suggested the municipalities could offer foundries an off-peak tariff rating. Alternatively, the foundry industry could search for opportunities to significantly reduce costs without necessarily reducing the income of the municipality.
“We’ve got to be quite inventive in considering how we can cut electricity costs without impacting on the income of the municipalities,” says Davies. “If they receive less income, they’re not going to balance their books.”
Another important issue is the fact that electricity tariffs set by municipalities differ from region to region.
As one of the outcomes of its meeting with Nersa, the NFTN met with the South African Local Government Association on April 4 to discuss the incon- sistency of tariffs between municipalities. The NFTN is also collaborating with the Energy Intensive User Group, which is in the process of conducting a survey to find out what the various municipalities are charging for electricity.
“This would be very informative for us,” says NFTN project leader Adrie El Mohamadi. “If we are to come up with some form of a foundry solution, we have to understand the municipalities’ tariff structure.”
The role of the DTI in coordinating the various other depart- ments’ impact on the speed at which the foundry industry grows was also discussed at the Nersa meeting as part of the solution to the foundry industry’s problems. It was established that nine different departments within government should each have an understanding of one another when it comes to the foundry industry, as well as the manufacturing sector as a whole.
“The idea was for us to develop a discussion document for the DTI to take further, to engage with those departments and bring them all on board,” says El Mohamadi. “We are not going to move forward unless we do it collectively.”
Saif and the NFTN agree that they would have liked some clearer outcomes from their meeting with Nersa, but acknowledge that there are many contradictory factors present with regard to energy in South Africa.
“We understand that they’re regulators. Nersa cannot make big decisions in support of us if it’s going to affect another sector negatively,” she says.
Edited by: Chanel de Bruyn© Reuse this Comment Guidelines (150 word limit)
Other Foundries and Forges News
Updated 1 hour 7 minutes ago Goldman Sachs Group has sold its controversial metals warehousing business to Swiss private equity group Reuben Brothers, the Wall Street bank said on Monday. The deal for Metro International Trade Services comes months after Goldman formally put the business on the...
Updated 1 hour 15 minutes ago Greenhouse gas emissions by the world's top 500 companies rose 3.1% from 2010 to 2013, far off the cuts urged by the United Nations to limit global warming, a study showed on Monday. The top 500 firms by capitalisation accounted for 13.8% of world greenhouse gas...
Updated 6 hours ago The cost of copper theft decreased to R13-million in November from R13.2-million in October, according to the SA Chamber of Commerce and Industry's (Sacci) Copper Theft Barometer. "The November figure is 1.51% lower than a month ago and 36.8% higher than a year...
Recent Research Reports
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
This Week's Magazine
South Africa remains an important manufacturing and export platform for Ford Motor Company, says executive chairperson Bill Ford. However, he adds that other countries on the continent are “becoming interesting”, and that the US carmaker is casting its net wider for...
Germany’s Max-Planck-Society (MPG) and the Max-Planck-Institute for Radio Astronomy (MPlfR) are investing €11-million (about R150-million) into South Africa’s MeerKAT radio telescope array programme. The money will be used to design, build and install S-band radio...
Infrastructure spend in sub-Saharan Africa will grow from $70-billion in 2013 to $180-billion by 2025, says PwC capital projects and infrastructure Africa leader Jonathan Cawood. This is one of the findings of PwC’s Capital Projects & Infrastructure report on East...
Private-owned defence and aerospace manufacturer Paramount Group and the Ichikowitz Family Foundation unveiled its Anti-Poaching Skills and K9 Training Academy in Magaliesburg last month.
The inclusion of Bluetooth to provide sub-three meter accuracy and heightened functionality for users is one of the ways to change existing wireless networks into engagement networks. An engagement network differs from common wireless networks in that it enables the...
Next ArticleMelting trade needs more recognition