Eskom hike will cripple mines

Feb 01 2013 07:57
Cape Town - Eskom's 16% tariff increase will push the mining industry over the tipping point, the Chamber of Mines said.

The body told the the National Energy Regulator of SA (Nersa) on Thursday that Eskom was more interested in its credit rating than the interests of South Africa, reported Business Day.

It warned that the electricity increase will force mines to lay off staff.

More than half of the country's platinum mines are loss-making or marginal and 37% of gold mines are in a similar position, however, electricity added R7bn to their costs over the past five years.

Roger Baxter, senior executive at the chamber, told the hearing that Eskom was too focused on profit making and claimed that it was evident in the fact that two thirds of the proposed increase in electricity prices was attributable to return on capital and depreciation charges.

"This clearly shows Eskom is primarily focused on achieving a standalone investment grade rating at the expense of the competitiveness of South Africa’s electricity intensive tradable sectors," he said.

Chamber of Mines president Mark Cutifani said it appeared that the 16% increase was needed in order for Eskom to secure its investment-grade status.

"The economic impact of Eskom’s proposals is substantially negative. The South African economy cannot absorb the proposed further doubling of the price on the back of a price that has already trebled," Baxter said.

The current Multi-Year Price Determination, MYPD2, ends on March 31 2013. New tariffs will be implemented from April 2013.

Nersa will announce its final decision in February, following an extended period of consultation and public hearings.

In January, Fitch credit ratings lowered its outlook on Eskom's long-term local currency IDR to 'BBB+' from 'A' with a stable outlook. It also dropped its senior unsecured local currency to 'BBB+' from 'A'.

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