Mining Weekly Editor Martin Creamer in conversation with Modupi Makhamele, host of ‘The Editors’, a show broadcast nationally on SAfm every Sunday morning and dedicated to analysis of the news of the week. This week has a strong focus on South Africa’s electricity crisis. (February 3, 2008).

Modupi Makhamele: SAfm South Africa's news and information leader of course, every Sunday round about this time we speak to the editors, this section is called the editors, today we will be speaking to Martin Creamer who is the publishing editor of Mining Weekly he is with me here in the studio, and Kim Cloete who is the SABC Parliamentary editor, a very good morning to you both.

Makhamele: Now there's several issues to talk about, I think we'll start off with the electricity issue which I think is one of the biggest stories that has been in South Africa for quite some time now, what I want to know is the impact of the electricity on mines and the economy, I think Martin that, of course, is your speciality, how has the electricity crisis impacted on mining?

Creamer: You know we speak of Black Friday, when the mines were shut a wek ago. Well, I can tell you, it's not just one Black Friday, but it's an ongoing black outlook. South Africa has already witnessed one force majeure by one mining company that has been forced to stop supplying  mine product, that means that the South African producer of that product cannot supply, and there is now a great wory that there will ber many more of those. We're going to have more pleading by South Africans, who need to supply mining product abroad, that they cannot do so; now that has a devastating impact on our current account. Already our current account is fragile. It has been put on the lowest rung of hell by the latest edition of The Economist of London because South Africans are importing too much, and exporting too little. Now, if we do not allow the mines to export, we are going to get into an even worse situation. We are heading for a gold meltdown. I can tell you that the Chinese overtook us in gold production this year and they're going to knock us into a cocked hat going forward because, if we don't have the supply of electricity, and we don't have electricity certainty, our gold production is destined to fall to around 200 t which will take us back to the year 1900, so that's how far backward production levels will deteriorate, which is a national catastrophe, and South Africa is not taking it seriously enough. There are four figures I'd just like to put over, 90%, 7% and 3%. That combination of numbers is the magical solution to our problems and, why do I know that? Because we went through a winter with a forecast of 38 000 MW, in other words, we could generate 38 000 MW and still not have load shedding. What are we doing now? We are down to 29 000 MW. What is the problem? We are not sticking to that world benchmark of having 90% of power-generation capacity up, 7% on scheduled maintenance and not more than 3% on unscheduled maintenance. Now, how can we fall so badly behind on a world benchmark that Eskom itself set for itself? We have to get back to that benchmark and we will be out of the woods.

Makhamele: Kim, that's a very strongly worded response from Martin, do you share his sentiments?

Cloete: Well yes, I think you know generally South Africans are really concerned about that, just from the ordinary person, and anyone you speak to on the streets through to politicians, I mean we've seen the whole repercussions in Parliament as well, they called a special debate this week on the electricity crisis and I think it's absolutely 100% obvious that everybody was really worried about this crisis. A lot of it was in blaming Eskom and Cabinet Ministers and the President and Alec Erwin for the crisis, but I think it's gone obviously beyond blame, what do we do about this problem at the moment? And a whole array of alternatives have been put forward but, as Martin says, it really is that we've got ourselves into this position and it's a very long-term thing to get any kind of resolution to this crisis over the years and the impact on the economy is absolutely massive and that has certainly been conveyed in a special debate that was called in Parliament this week on the electricity crisis.

Makhamele: And, Martin, you mentioned the effect on gold production, what about internationally, how will it affect the gold price?

Creamer: Well, you know, if we just get back to the situation of the mines, the mines do not represent such a big percentage of the gross national product, but they are massive exporters, and that is the way they contribute to the country, they export. Now, it's no good us saying, this electricity crisis pushes up the gold  price, and hooray the platinum price is up; beware a price that rises too fast. We know that in the late 1980s, Ford Motor Company suddenly said, we are not going to use platinum for our catalytic converters, we are going to use palladium, and we know what that did to the platinum price, it sent it plummeting down. Let us not overtax the market with very high prices, let us not create deficits on our supply position, as we need certainty around electricity supply. I'm saying we can get certainty and it will be worth throwing billions of rands at solving the problem, and every single cent that Eskom has payed to the government in dividends since 1994 should now be made available in a fund to create public-private partnerships (PPPs). We need to create PPPs around the maintenance issue and around the 90%, 7%, 3% upkeep strategy. It is a maintenance issue at our power stations, it is not an infrastructure catastrophe, because we've got the actual infrastructure there. There's been an over emphasis in demand growth, we've been told we are the victims of our own success, no, I'm telling you we are not producing enough electricity, and we can, we have the infrastructure there. Let us treat this as a national catastrophe, get people in as a national emergency, and have PPPs with the private sector. They say there's a manpower shortage, make sure you have a PPP which is enshrined by the Treasury of South Africa to make sure that people get into these power stations and turn them to positive account. We should not be having these load sheds, that's my argument, we went through a winter without the load sheds because we've got the capacity, let's bring this capacity back and let's get behind Eskom, and let's grind out a result.

Makhamele: Martin one of the reasons given for the load shedding is wet coal, do you agree with that?

Creamer: Look, the position must be rectified, we can do it, the mines can help the mines, we know that we burn a very low calorific value of coal, let them get that coal to the power stations and get it perhaps at a slightly higher quality, let us even institute some sort of drying mechanism to get that coal through the system. It is a problem when its wet but we can get it through by using innovative methods, even if they are expensive because it is cheap at the price, and we must throw billions at this even in the short term to sort out our national reputation and also to sort out Eskom's creditworthiness because Eskom as it is is selling less electricity, its revenue is going to be down, if its revenue is going to be down, where is it going to get the creditworthiness to borrow money to build new power stations, its been put in a worse and worse situation.

Makhamele: From what I know Kim, there has already been some sort of plan that has been set up in order to help mines with load shedding, I'm sure you are aware of this Martin. Also I'd like to add that the ANC President Jacob Zuma will visit Parliament this week, as you mentioned earlier, in a special sitting over the electricity crisis, what can he possibly do, or Cabinet?

Cloete: What Cabinet can do, I think they have announced a plan that they are going to be looking at this national response to the electricity shortage, and I think they have got some very good points there but the problem is that it's all focused on Eskom and not enough on private players and I think that's a big consideration that they going to have to look at, but also moving those power stations that were mothballed back into operation again is one of the things put forward, getting consumers to realise the impact of it, and I think if there's one thing that has happened, it's that consumers and ordinary South Africans have realised that this is a crisis that each and everyone of us is going to have to tackle and we going to have to play our part in trying to alleviate this problem and then also various programmes they put forward on banning incandescent light bulbs and obviously the pitch to solar water geysers and solar power. I think those are some of the issues that have been put forward to the electricity national response plan and those will be the issues debated here at Parliament. I think the fact obviously would be to work far more with the private players and get the extra expertise and the analysts involved and then we can really thrash it out, I think we need as many players as possible to look into this crisis and I think Parliament has got a very important role to play together with the Cabinet in trying to thrash out how to move ahead with this and as I said, I just think from Parliament's perspective they raise the issue to try and get consumers to realise how it affects them as well.

Makhamele: Martin now there is a lot of concern raised to the fact that we only have one electricity supplier, and that has contributed somewhat to this problem, that Eskom has no competition, do you think it would have helped the situation if there was maybe another "Eskom"?

Creamer: We've had a Telkom that is listed on the New York Stock Exchange and it is no longer a State-owned enterprise, it is performing abysmally, so if we had Eskom that goes from a State-owned enterprise to a private sector, we'd probably be even worse, we have got to sort out this problem that we've got in the short term, we've got a very short-term problem here, and they are looking for too much breathing space, we cannot give Eskom as much breathing space as it wants to because the whole national reputation is at stake, I do say we've been getting our electricity for nothing, it is pathetic that mines have been paying US2c/kWh for electricity, and we've been boasting that we are the cheapest electricity supplier in the world, that boast has come back to haunt us because we haven't actually been engaging in stay-in-business type of rates and we have to maintain our plant there has to be a situation, as I say, of PPPs where you bring in a private sector company and you bring in the State that work together on various power stations so you might have a PPP for generation or a PPP for even individual power stations but we need to even pay to bring in the best power generation experts in the world to do an independent assessment of what we need, because that is where we might need some outside eyes to just give us some better direction on what should be done, now Trevor Manuel is sitting on a surplus, we have a situation where enormous dividends into the State have been paid in the past, there's money available to bring out, what I call the ‘Red Adoir' of power generation, those experts in the world could come out as an independent task team, they don't have to interfere with what is going on remedially now, they can do an independent assessment just to see whether we are in the right direction. There is also no doubt that we have been spoilt as far as electricity is concerned, we've paid next to nothing for it and we've wasted it and that is the demand which the government is pleading with us now, sort yourselves out and make sure you can be the equivalent of a power station of 4 000 MW by cutting down on your own consumption, and we've got to do that, we are all in the same boat and we've all got to work, but I'm saying that we cannot underemphasise the supply side and this is what has happened, the government is trying to say to us that we must cut, we must say to the government you must fix this capacity that is in place, you've paid for it, it's a nominal capacity of 42 000 MW, how come out of 42 000 MW you are generating only 29 000 MW, this is a disgrace.

Makhamele: Martin you know it is 08:45 now, I would still like to stick to this topic, but unfortunately we have other topics to discuss, but just on this topic still, just one more question. Are jobs in the mining industry on the line? Kim do you have any clue?

Cloete: Well, I would imagine that if it continues for some time that there would be a job crisis and as you can see the unions are very upset about this and very concerned about this, I mean sending workers home in the short term as has happened over the past week, and workers strolling around, there obviously has to be some concern, it's a private sector, it's a business and the mines can't survive without operating and having to pay wages to everyone, so I think it is a concern, I'm sure Martin would be able to tuck into this more, but the statements that have been issued by Cosatu and other players have shown that they certainly are concerned about job cuts.

Makhamele: Martin,

Creamer: Gold Fields has been the first one to report, we will get the other reports from AngloGold Ashanti on Wednesday next week, Gold Fields reported that six of their shafts are under jeopardy because if you only guaranteed 90%, and you are only getting 80%, you've got to obtain your gold where you use the least electricity, where it's easiest to get, where you get the best return, so yes, jobs are at stake.

Makhamele: Thank you very much and when we come back from the break we talk about Tito Mboweni's decision not to hike interest rates, we also look at the ANC lekgotla in Cape Town and KwaZulu-Natal and we also look of course at the week ahead. 12 minutes to 9 it is SAfm South Africa's news and information leader, it is weekend am live, with the editors section and today on the panel we have Martin Creamer, who's the publishing editor for Mining Weekly and Kim Cloete, who's the SABC's parliamentary editor. We now look at the Reserve Bank Governor, Tito Mboweni, and he of course decided not to hike interest rates, which of course was a concern for everybody, I'm sure you know about interest rates Martin, what do you think about Tito's decision?

Creamer: Well, I think you can't leave money too cheap and he has been making sure that money does become more expensive, it's the same as with the Eskom issue, if you leave your power generation to become too cheap it becomes abused, it's the same as your money, if its to available and there's too much money chasing too few goods, you've got a problem, and I think that he has made sure that the value of our money is being protected by increasing rates, but the fact that he didn't do it this time round has indicated that there is an improvement, a discernable improvement, and on the basis of that discernable improvement, he has spared South Africa the hardship of having to pay more for money.

Makhamele: Kim?

Cloete: Yes, I agree with Martin there, I think that, you know he said, it's a fair decision, I think if he can make a monetary policy committee for many months. I don't think he really had an option with the way the country is and the economy is at the moment, continuous spending also has cooled down, I think that also it has quite a big impact on his decision and certainly with all these factors playing in consumers are hurting badly and he did hike rates in December and I think he had no option but to keep it as it is and obviously it's widely welcomed by everyone.

Makhamele: But is it likely, Kim, that he might increase the interest rates after the next monetary policy committee meeting.

Cloete: Well, I think he's going to have to see how the petrol price turns out, it has come down from $100/bll and that reduction didn't influence him as much as it has in the past, but I think they look at a whole variety of things including the petrol price, including Eskom prices, I think the US recession which is having a ripple effect on the global economy, so I think he is going to have to look at various factors and then on the back of that decide.

Makhamele: And talking about petrol and the Eskom crisis and generator demands, can petrol go up yet again?

Cloete: I think that it could go up yet again and it just depends on the global needs, and as far as the Eskom crisis is concerned, Martin I presume you'll be able to speak more on the needs for the industry.

Creamer: Well, you know the mines have been hit very hard by the diesel price, particularly those who do opencast mining and the whole fuel issue can be put into one big basket along with the Eskom crisis, we not only have a situation of an inland problem looming and that is why Sasol has been talking about Project Mafuta, because there could be a crisis around actually getting petrol and diesel into the inland area just as we are having this energy crisis now, so it is time to actually look at all these basic commodities that keep our economy going and to analyse properly the supply and demand so that we don't fall into the same trap that we've had now with Eskom, we see that when you have a situation down in Cape Town, where you have a blackout and you have the refinery not being able to operate, well, that is all, encompassing because then they not going to be able to produce fuel down there, and if they not able to produce fuel, then there are serious repercussions not only for motorists today, but also for power generation because where does the new OCGT, the open-cycle gas-turbine system, that they built down in Atlantis as an emergency measure, where does it get its fuel from, it gets it from the refineries, so if you can't get fuel from the refineries to the new gas plants, you then are not going to get electricity either, so it is a vicious circle.

Makhamele: Martin, do you think this could be perhaps another opportunity for green energy?

Creamer: Well look, green energy has to be analysed carefully, we know that the maize farmers want to produce biodiesel from maize, and we know that every drop that they do produce, and, by the way, they just produce it on their own, whether they get government sanction or not because they are private sector companies, every drop they do produce gets snapped up, so people are looking for diesel in general and biodiesel, if it can be even more green and better, is more appealing, but we've got to examine with these farmers, what is the energy that they have to put in to get biofuel out? Is that in the right proportion, in other words, if you put one unit of energy into getting biofuel from maize, how many units of energy are you getting out on the outside? Now with sugar, it seems to be a fine thing if you create bioethanol from sugar, you get a ration of 1:8 I'm told, in that one unit of energy in to produce the sugar, and the ethanol gives you eight units of energy out, but I'm told it's not the same with maize, and we going to have to be careful we don't overuse energy and underyield on what we obtain on the green side.

Makhamele: Kim, what do you think of the African Union (AU) Summit in Kenya?

Cloete: I think that they going to have to do a lot more, the situation is absolutely critical and I think there's a lot of pressure on the African Union to step up more muscle to try and do something about Kenya, as you know, nearly 1000 people have been killed there, many of them extremely violently, decapitated and burnt to death in the most horrific way and I think they are going to have to do something very serious to try and get things right. I think that there is a perception that the AU is sitting back and not doing as much as it can do, and I think they going to have to step up the pressure. Obviously, there was a visit there this week by former head of the UN, Koffie Anan, and a whole delegation and I think that helped to influence things and to set the process going, a negotiation process between the opposition party and the ruling party to try and see if something can be done there, but what I think is really disturbing is that there seems to be another element involved and that's the gangster and third-force element that's taking part in Kenya from the reports that have been coming out of there, and I think to control that absolutely wayward element is going to be a serious problem, they have to do something urgently, the situation doesn't look like its abating besides from the violent rift it has caused immeasurable damage to Kenya's image and Kenya was seen as a stable, growing economy and certainly one of the leading countries in the region and it has caused massive damage and they are going to have to see what can be done to try and bring back some of its image again, I think it's going to take a long time.

Makhamele: I think we should take a look at the stories that are likely to dominate headlines this coming week, of course, the State of the Nation address by President Thabo Mbeki. What do you expect him to say Kim?

Cloete: Obviously in Parliament it's the number-one story this week, there has been so much talk, the papers are absolutely full of it today on the two centres of power, you know that Jacob Zuma has been very much all over the country this week and lekgotla have been held all over the different provinces and the ANC Parliamentary session was also held again from lekgotla this week and I think that's going to play very much into the whole State of the Nation address and certainly the debate, which could be very interesting the following week. I think the President is going to have to play this very carefully, I think he will raise these issues, the analysts have been saying, wondering if he will give a technical speech or whether he's going to go further than that and try and say we should mend the design and try and work together with the two centres of power which he did refer to at the Polokwane conference. I do think, though, that he is going to raise some of the achievements that have been clouded over by the electricity crisis and the whole crisis over Selebi, the court case and the Scorpions, but I do think that he will raise some of the gains in the economy and then how much can be done in the next 14 to 16 months before the election.

Makhamele: Martin, I'd just like to bring you in here, what is Mining Weekly going to be looking at especially with the Eskom crisis, I do remind you, we have two minutes to go?

Creamer: I know for a fact that the President will be addressing this power crisis issue in his State of the Nation address, of course, there are many other political issues, people will be interested to find out about, but that is the one that we have questioned government officials about and they've told us that there will be more in the State of the Nation address, so we hope for some more elucidation on that.

Makhamele: Thank you very much, that wraps it up for today, that was Martin Creamer the publishing editor for Mining Weekly and Kim Cloete who is the SABC's parliamentary editor.