JOHANNESBURG (miningweekly.com) – The Chamber of Mines (CoM) on Thursday slammed State-owned Eskom’s proposed electricity price increase, saying that it could result in further restructuring within South Africa’s platinum and gold sectors.

The rising cost of energy had already added about R7-billion to the electricity costs of an already strained, high-cost, energy-intensive gold and platinum sector, CoM president Mark Cutifani said.

The chamber was responding to the power utility’s application for yearly increases of 16% over the next five years starting April 1, 2013, increasing its selling price from 61c/kWh to 128c/kWh in nominal terms by 2018.

Cutifani noted that energy prices between 2007 and 2017 would have increased 587%.

In its submission to the National Energy Regulator of South Africa’s (Nersa’s) public hearings in Midrand, the CoM stated that the electricity price was reaching a “tipping point” and had, along with limited capacity and supply, hampered the country’s mining sector over the past five years.

Many companies in the industry, which was besieged last year by labour unrest, high costs, lower production, economic woes and difficult market conditions, besides others, had been forced to downsize, sell-off, restructure and cut capital expenditure across many operations.

Anglo American Platinum was the most recent mining group to announce far-reaching restructuring plans, including the closure of four shafts, selling its high-cost operations and restructuring some of its Rustenburg operations – potentially leading to the retrenchment of 14 000.

The industry had experienced declines in gold production and, at current prices, 50% of the country’s platinum mining sector was lossmaking.

“Any further cost pressures from a rapidly rising electricity price will force more of the industry into the red and force more restructuring,” Cutifani said, adding that it would further hamper the mining sector’s ability to contribute to a higher, more sustainable and labour-absorbing economic growth rate.

The CoM believed that the introduction of competition into the electricity supply industry would ensure sustainable electricity supply at acceptable prices.

Further, a proper independent economic-impact assessment of Eskom's proposed price increase on the key tradable export sectors should be undertaken.

“… Eskom can make a bigger effort on reducing operating costs [such as] water, human capital [and] overheads,” Cutifani explained, accusing the utility of being primarily focused on achieving a standalone investment-grade rating at the expense of the competitiveness of South Africa’s electricity-intensive tradable sectors.

Cutifani added that government should continue supporting Eskom’s balance sheet to enable access to funds at sovereign investment-grade level.

Further, the R13-billion integrated demand management costs should also be removed from the pricing application and be covered by the funds derived by the fossil fuel electricity levy.

The chamber tabled its response and recommendations on mitigating the proposed electricity increases to Nersa on Thursday.