South African officials and the CEOs of mining companies operating in the country have expressed concern as sweeping blackouts have plagued the rainbow nation; the debt woes of the main power utility Eskom threaten to undermine the South African economy.
Kristian Rouz — South Africa’s Energy Minister Jeff Radebe is urging greater investment in the energy sector amid lingering uncertainty over the fate of the rainbow nation’s public utility Eskom. The company’s high leverage and low throughput efficiency have resulted in massive power outages, impacting both residential and commercial customers, and causing disruptions throughout the South African economy over the recent months.
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Speaking at an energy conference in Johannesburg Tuesday, Radebe said South Africa needs to ramp up budget spending and attract private-sector investment in new power generation capacity. He said the rainbow nation also needs to reassure investors of its ability to provide electricity to businesses in other sectors of the economy.
The minister’s remarks come after economists expressed concern that Eskom’s failure to supply power could shave percentage points off the South African economy’s GDP. Power outages could also spook investors, who have already expressed concern amid Cyril Ramaphosa’s controversial racially-targeted land confiscation plans, as well as the declining efficiency of South Africa’s productive forces.
“Eskom is undermining President Cyril Ramaphosa’s plans to ensure policy certainty,” South Africa’s economic strategist Dr. Thabi Leoka of SA Express said at an investment forum in Sandton last week.
“I don’t think we are making the tough choices, the highest cost is labour, the fat has to be cut,” he added.
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Meanwhile, Johann Els, chief economist at Old Mutual Investment Group, said the ongoing power outages could subtract as much as 0.5 percent from South Africa’s economic growth this year. He said that if Eskom’s woes are fixed in the near-term, the rainbow nation’s economy could grow by as much as 1.5 percent in 2018.
However, Eskom has said its debt problems are too serious, and could potentially require government interference.
For his part, Energy Minister Radebe said Eskom’s power outages are “untenable”, and must be addressed. This as the South African government is struggling to tackle high unemployment, declining investment ratings, and the demonstrations of mining unions across the country.
“With all these power cuts through Eskom, there will be consequences. People will lose their work for less time put in for work and we are very, very concerned about this,” Stanford Mazhindu of trade union UASA said.
Some experts suggest that South Africa’s energy sector could greatly benefit from the domestic production of natural gas. President Ramaphosa recently announced that a major natural gas field has been found offshore, some 175 km off the coast of Western Cape province.
“This could well be a game-changer for our country and will have significant consequences for our country’s energy security and the development of this industry,” Ramaphosa said. “We congratulate Total and its various partners and wish them well in their endeavours.”
Economists believe the French energy giant Total, which discovered the field, could start production in the coming years, after all necessary tests are done. However, deep sea oil exploration takes time, which — in the wake of Eskom’s looming collapse — South Africa might be running out of.
Meanwhile, some experts say the problem is not the lack of domestic production of fossil fuels in South Africa. They suggest the rainbow nation is facing deeper structural issues, and the discovery of natural gas might not bring positive change.
“This could spell a better life for all, provided we don’t allow corruption to creep in. Look at what happened in Nigeria, the people haven’t benefited from their oil reserves,” Prof. Bonke Dumisa of the University of KwaZulu-Natal said.
For their part, mining companies working in South Africa, including domestic and international enterprises, are planning to reduce their reliance on the nation’s centralised power grid. For example, Anglo American Platinum Ltd. (Amplats) said it will likely build a 100-megawatt solar power plant at its largest mine in South Africa.
Renewable sources of energy and autonomous local electricity systems could offset Eskom-related risks, miners say. However, the South African government might oppose such plans to maintain its relevance amid the country’s gradually changing economic and political landscape.