‘Eskom hike would sound death knell for mining’ – Baxter

Eskom has been identified as South Africa’s biggest economic threat. Speaking at the annual Investing in Africa Mining Indaba last week, CEO Phakamani Hadebe said there was no denying that Eskom had only itself to blame for its current situation. And while those responsible should and would be held accountable, fixing the problem was of far more importance as the failure of Eskom would be the failure
of South Africa. Hadebe said the utility could no longer service its debt from its revenue, maintenance was problematic and falling behind schedule daily, the staff complement was too big, and there was uncertainty over how long it would be able to keep the lights on in South Africa. “Eskom’s contribution to the health of our economy is too great for it to be allowed to fail. It is too important and is too big to fail. And we will
not allow it to fail. Restoring and securing energy security for the country is an absolute imperative.” Having alluded to a rescue plan throughout the Mining Indaba, President Cyril Ramaphosa unveiled the first part of his plan to fix the crisis that is Eskom during his State of the Nationa (Sona) address last week. “To ensure the credibility of the turnaround plan and to avoid a similar financial crisis in a few years’ time, Eskom will need to develop a new business model,” Ramaphosa said, confirming that it would be remodelled and split into three separate state-owned entities comprising generation, transmission and distribution. Ramaphosa also confirmed that government would recapitalise the failing state-owned entity without “burdening the fiscus with unmanageable debt”. The details of this bail-out are expected to be announced during the annual budget address in Parliament in the next few weeks. According to Hadebe this was exactly what Eskom needed if it was to survive, but added that it would also have to include “above inflation tariff hikes”. It’s a view that is being rejected across industry, especially in the mining sector which is possibly one of the biggest purchasers of power in the country. Mike Fraser, COO of South 32, told delegates at the indaba that the price of electricity was key to compete in any industrial environment. “The cost of power weighs on South Africa’s impact to draw
foreign investment. We risk a downward trend in electricity sales to customers. Eskom cannot afford this,” he said, calling for a tariff reform that included an industrial tariff to attract investment. Anglo American CEO, Mark Cutifani, expressed his concerns several times saying Eskom was the biggest threat to the company’s South African operations. Hadebe, however, has remained adamant that even with government recapitalisation and a remodelling of the business, tariff hikes are necessary and unavoidable. This will hit mining and business hard with many saying it is not a situation the country can afford considering its low economic growth and high unemployment rate. Above inflation tariffs were not acceptable, said Roger Baxter, chief executive of the Minerals Council of South Africa, as they would make mining unsustainable
in the country. This has been reiterated by the manufacturing sector which has said it cannot afford these tariff increases. “If Eskom gets its 17% price increase by 2021, there will be no deep level mining or deep level platinum mining in South Africa. It’s just not an option, so having some sort of workable solution is absolutely key. Our view is that government has to play a key role and we will play our role too but not with this sort of price increase,” said Baxter. It would sound the death knell for many parts of the mining industry and it would be self-defeating for Eskom in that they would lose a large proportion of their paying, reliable, baseload customers.” The National Union of Metalworkers of SA (Numsa) has rejected outright Ramaphosa’s move to unbundle Eskom, publicly stating on Friday that while the decision seemed to be final, it would lead to massive job losses.