South Africa’s Chamber of Mines said the 5.23 percent electricity tariff increase could have a crippling effect on an industry that has already experienced considerable struggles during the past two years.
The increase granted by the National Energy Regulator of South Africa (Nersa) is significantly lower than that which had been requested by power utility Eskom, but it does not negate the fact that the mining industry has become increasingly reliant on electricity for its operations.
Chamber of Mines Chief Economist, Henk Langenhoven explains.
“While we welcome Nersa’s decision to limit the increase to an estimated allowable revenue of about R190-billion rather than the R220-billion requested by Eskom, electricity costs continue to be the fastest growing component of the mining sector’s cost base having increased by more than 300 percent over the past eight years,” said Langenhoven.
While the mining sector insists that it has experienced significant troubles in recent years, Langenhoven also explained that those troubles were not quite over just yet.
“The mining sector continues to be under significant pressure with, for example, 65 percent of platinum mines are currently loss-making,” added Langenhoven.
“We have already seen a number of instances where mining companies have been forced to restructure to ensure their survival, with the number of people employed in the industry declining by 70,000 (14 percent) between 2012 and 2016 alone.
“Should current conditions in the sector persist, and in the absence of cost pressures abating (including electricity tariffs), mining operations will be pushed further into the red which, in turn, will necessitate further restructuring,” he said.
The Congress of South African Trade Unions (Cosatu) is a key player in this conversation, given the number of job losses that have been experienced. However, there is little clarity on just how prominently they featured in the discussion before Eskom made its request and before Nersa made its final decision.
Either way, Langenhoven is most pessimistic.
“It is our view, however, that this short-term measure must be followed by the design and implementation of a structural adjustment program of the entire electricity sector where Eskom would only be one of a range of suppliers of electricity.
“Without the finalisation of the Integrated Resource Plan, ensuring an economically viable energy supply for the country, Eskom will continue to be in danger of failing. Neither the country’s energy users nor its taxpayers can afford such an outcome. Without governance being restored at the utility it will become almost impossible to source funding to sustain the operations of Eskom.”