Power generation in South Africa has been a topic that has been on the minds of many of late, and it won’t be going away anytime soon. Eskom, being South Africa’s state-owned power utility, has been going through a tumultuous time with multiple instances of load shedding over the last few years. Early March 2019 saw the power utility implement Stage 4 load shedding, the highest South Africa has ever experienced, with plans in place for Stage 5 and Stage 6.
As a monopolised industry in South Africa, power supply to the public is under the control of Government and has seen the seeds sown and bare the kind of fruit you can expect from a mismanaged organisation. So, we ask the question, “How will local power infrastructure impact South African mining?”
Several factors affect the profitability of a mining operation: the main factors include; the grade of the ore; size of the deposit; the method of mining; accessibility; transportation facilities; available infrastructure; the stage of industrial development, and technology. Now let’s say there is an increase in the cost of electricity, how many out of those 8 factors would be affected? At least five of them, right? And this is the conundrum mining operations face daily. As commodity prices, fuel prices, and electricity prices change, and for this example, let us assume they become more expensive, it will start to cut into the mine’s profits.
Now on to Eskom, a severely damaged and debt-ridden institution that has been plagued by corruption and maladministration. If Eskom defaults on its debt which is over R400 billion according to Fin24, it will cause economic damage that could take years to rectify, and the mines will take a huge knock that could destabilise the mining industry to a point of collapse. In an article published by Fin24 on the 7th of March, South Africa’s National Energy Regulator stated that Eskom could hike tariffs over the next 3 years, the implication on mining could be huge. NERSA suggested a 9.41% increase in 2019, 8.10% in 2020, and 5.2% in 2021, which means mining operations will have to find a way to offset these costs.
Of the largest costs South African mining operations face is labour. The South African Minerals Council predicted that an electricity price increase will cost the mining job market over 90,000 jobs. A large portion of that number will come from a gold mining giant in South Africa, Sibanye-Stillwater, who will cut nearly 6000 jobs in a restructuring plan.
This will without a doubt begin to put pressure on. If history tells us anything, workers will inevitably strike, and this could potentially lead to unrest in the mining regions of South Africa. Eskom has generated two avenues to possibly solve the issues. In a statement by Tito Mboweni, the current finance minister, the government will give financial support to Eskom that will see a R23 billion cash injection a year for up to ten years. The second avenue was stated during Cyril Ramaphosa’s state of the nation address. The plan is to split Eskom into 3 departments: generation, transmission, and distribution. The splitting of departments carries huge risk for the utility, but sometimes you need bold moves to make huge changes for the better. South Africans know we need our power utility to get better.
