South Africa’s mining companies may have to cut back their electricity use even further as part of plans to shore up the country’s stricken power utility.
Miners, the biggest of which have already agreed cuts of 4-5 per cent this year and 5 per cent next, might in time be asked to continue the path to further reduction, while maintaining or increasing production.
Jacob Maroga, Eskom’s chief executive, said the nation as a whole needed to reduce energy consumption by a tenth over last year’s levels in order for the national grid’s reserve margin to reach a “comfortable” level and avoid repeats of January’s near-collapse of the power system.
South Africa was thrown into turmoil in January when, after years of the government delaying sorely needed investment in new power plants, hit by a series of widespread power cuts.
Production from the mining sector – which includes giants such as Anglo American, BHP Billiton, Goldfields and Impala Platinum– slumped by a fifth in the first three months of the year.
New power stations will not fire up until 2012 at the earliest. Eskom’s campaign to curb electricity use has yielded a 4 per cent fall so far but it must also contend with an annual 4 per cent projected growth in demand.
The state-owned utility calculates that, with no reduction in demand, reserve capacity would be approaching zero by the time South Africa hosts the football World Cup in 2010.
The utility is embarking on South Africa’s biggest single infrastructure investment programme, spending R300bn ($39.8bn) over the next five years on expanding capacity.
Much to the chagrin of South Africans, accustomed to some of the planet’s cheapest electricity, the energy regulator has approved tariff increases amounting to 27.5 per cent for this year. It also permitted Eskom to pass on some fuel-price rises from next year. Mr Maroga said prices would have to rise further as he unveiled annual results showing pre-tax profit falling by 86 per cent year-on-year to R1.3bn on increased revenues of R44bn.
The decrease was due largely to a R7bn leap in energy input costs resulting from emergency short-term coal contracts and the need to resort to using exorbitant diesel-fired power stations.
The company plans to borrow up to R150bn, about 60 per cent of which it will seek to raise abroad.
However, Standard and Poor’s, Fitch and Moody’s, the credit rating agencies, are all considering downgrading their investment-grade ratings for Eskom, whose debt has no explicit state guarantee and whose interest cover stands at 1.5 times.
S&P’s will announce its decision on Thursday. Craig Jamieson, head of Moody’s South African office, said the agency would wait to see Eskom’s ”tariff projections and funding plan” before pronouncing.
The government has pledged R60bn in finance in an attempt to bolster its utility’s standing with the agencies.
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