THE tariff increases the National Energy Regulator (Nersa)
awarded Eskom early last year – 25% in the 2010/11 financial year, and 25% in
2011 and 2012 – caused many people to fear a crippling of the economy.
It was overdone; the country's electricity was too cheap and
a dramatic adjustment was required to finance the construction of two new
coal-fired power stations.
The January 2008 electricity crisis and the load-shedding
that followed brought this point soundly home. But Eskom is now considering
asking Nersa for another two 25% hikes – one each in the financial years ending
in 2013 and 2014.
There's a good chance this would deliver a mortal blow to
the economy's highly significant mining and industrial sectors, especially if
accompanied by a carbon tax of R100 per tonne, said the Energy Intensive User
Group (EIUG), a body consisting of Eskom's 36 biggest clients.
They include BHP Billiton [JSE:JSE:BIL], Anglo American
[JSE:AGL], Impala Platinum Holdings [JSE:IMP], the respective ferrochrome
smelters and ArcelorMittal SA [JSE:ACL].
This group, which Eskom naturally consults, regularly
communicates with the electricity giant and does not easily criticise it in
For instance, this winter the group continually consulted
Eskom in times of crisis to prevent a repetition of the January 2008 events.
Eskom has not formally announced that it intends asking for
25% increases, but the EIUG generally knows better than anyone else what is
happening in the corridors of Megawatt Park, Eskom's Sandton head office.
The group of influential companies' warning of the effect of
further sharp tariff increases following the last of three 25% hikes next year,
delivered in a joint press statement on Friday, should not be taken lightly.
The group authorised its chairperson, Xstrata executive
director Mike Rossouw, to sketch out the finer details of the dangers of
further hikes at an information session for media representatives on Monday.
The increases now being mooted, together with the coming
carbon tax, said Rossouw, would result in unprocessed mining products such as
platinum-bearing or chrome ores being exported for processing in other
countries, probably China or India.
South Africa would then have to import these metals for its
own production requirements.
The average price consumers paid for electricity last year
was 42c per kilowatt hour, rising to 53c per kilowatt hour this year. But this
is an average price, because wholesale consumers pay considerably less and
household consumers considerably more, especially after municipalities add
their 110% margin to cover the costs of distribution and support services.
"This is the overall average price of electricity,
including that generated from old and new power stations," said Rossouw.
Production costs at Eskom's existing fleet of power stations
are, however, about 10c per kilowatt hour, while those from new power stations,
restored power stations and independent power producers - from whom Eskom is
starting to buy electricity this year - range from 60c to 100c per kilowatt
Rossouw has objected to Eskom chief executive Brian Dames'
description of the price of 76c per kilowatt hour – which Eskom pays for
electricity it buys from the new, independent power producers – as a true
reflection of what South Africa's electricity should cost.
"It's an unfair comparison, because he compares the
average retail price with the cost of generation in new infrastructure. He
should have disclosed Eskom's generation costs from new power stations,"
The rising cost of electricity against the backdrop of South
Africa's unemployment problem presents the country with huge challenges that
gain complexity as the carbon emission debate increases.
Growth versus carbon emissions
In terms of the Copenhagen Conference, South Africa
undertook to reduce its carbon emissions by 34% by 2020.
But it is an economic truth that a nation consumes more
energy as its development increases. South Africa therefore has to reshape into
a low carbon-emitting country but at the same time create jobs – otherwise it
will face the very events now taking place in Egypt, Tunisia and Libya.
South Africa, however, is responsible for only 1.1% of
global carbon dioxide emissions, said Rossouw.
Even if we were to reduce this by 100%, it would have very
little impact on the global figure.
On the other hand China will, in terms of its commitment,
increase its carbon dioxide emissions by 500% by 2020.
The commitments China gave at Copenhagen were relative
undertakings, because the relationship between carbon emissions and growth was
India gave its commitment on the same basis - it is to
increase its carbon emissions by 350%, said Rossouw.
Brazil, which derives most of its electricity from
hydroelectric schemes and therefore produces clean electricity, could cut its
carbon emissions by 50% simply by reducing deforestation.
According to Rossouw, South Africa can lower its carbon
emissions by no more than 9% without destroying the economy.
"Our undertaking to the Copenhagen Conference clearly
explains that the 34% reduction depends on international assistance and global
technology transfer," said Rossouw.
About 83% of South Africa's carbon emissions come from
energy, which means its dependence on coal has to shift to other means of
generating power - a process that will be time-consuming and extremely expensive.
Realistically speaking, a 34% emissions drop is
unaffordable, especially against the background of South Africa's developmental
demands. The country will have to find a balance.
South Africa's mining industry is at a watershed. The cost
of operating a mine has increased at a terrifying pace.
Since 2000 the cost of platinum production has risen 7.1%
above the inflation rate. Over these 10 years, ferrochrome production has risen
as much as 8.4% a year above the inflation rate.
"We will simply have to find a more affordable price
trajectory and maintain it if we want to survive," said Rossouw. He sees
no option other than that, after the current increases, electricity prices
should increase by no more than the inflation rate.