Crisis to impact energy sector

Johannesburg - Although South Africa's strong fiscal policies will to a certain extent shield the country's financial markets from the current global financial slowdown, the South African economy as a whole will not be left unscathed and the country's energy sector will in many ways be impacted, the department of minerals and energy (DME) said on Thursday.

"Given the need for infrastructure expansion, the impact is bound to be negative," said DME acting deputy director general Tseliso Maqubela.

He reiterated energy's importance, saying it was a key enabler for economic growth.

There are many issues facing the country, and as if these were not challenging enough, the current global economic climate has added a dimension of complexity to the myriad of energy-related challenges that currently face us, Maqubela said.

"As has been indicated by many, domestic growth prospects will be impacted among others by depressed export demand, financial volatility and exchange rate turbulence," he said.

Addressing a conference on energy in southern Africa on behalf of DME director general Sandile Nogxina, Maqubela said while the economic slowdown in the countries that are some of South Africa's major trading partners would also impact directly on the country's ability to export, the exchange rate would further exacerbate the problem by increasing the costs of imports.

Southern African countries, and South Africa in particular as a net importer of oil, are not immune to the challenges that characterise the global oil industry.

"At present we are all aware that the South African oil refining capacity cannot meet demand, and this is a significant contributor to the trade deficit," said Maqubela.

"There is an increasing need to augment local production and diversify our energy mix," he added.

Until then, the country is at the mercy of fluctuating oil prices.

Efficient funding

Maqubela suggested the industry find innovative ways of being able to switch to cheaper sources of fuel when global crude oil prices are high.

"Indeed we are now benefiting from the sharp drop in crude oil prices, however, this should not lure us into complacency, as the rise, when it happens, may be just as swift as the decline," Maqubela said.

The DME also warned of the constraints in South Africa's liquid fuels logistical infrastructure, which is running at full capacity.

"Should we be faced with a sustained technological glitch at any of the refineries to the inland market, or in the Durban to Johannesburg pipeline, we may be faced with a situation where we are not able to get product to the inland market," said Maqubela.

He said to ensure continuous supply to the inland market, South Africa not only needs to increase pipeline capacity but also ensure that there are sufficient stockpiles should such a situation arise.

But such stockpiling comes at a cost.

"We need to engage on the most efficient mechanisms of funding," said Maqubela.

"More now than before, we need the support of the financial services sector to guide us as to how we can best raise the required funds for the energy infrastructure projects we are undertaking," he stressed.

- I-Net Bridge