Tag Archives: economy

Energy will be Key to South Africa’s Future

One of the key things that economic and social development in sub-Saharan Africa hinges upon into the future apparently is the robustness of its energy sector.

According to a report just released by the International Energy Agency (IEA), the current state of the industry and a lack of access to electricity by vast swathes of the population are, unsurprisingly, putting a break on economic growth.

But as the IEA’s chief economist Faith Birol explains: “The pay-off [of getting it right] can be huge, with each additional dollar invested in the power sector boosting the overall economy by $15.”

Unfortunately for South Africa though, its energy situation appears to be in a bit of a mess.

For instance, despite the damage to the economy caused by rolling blackouts across the country earlier this year, the National Energy Regulator has caused outrage by approving a tariff increase of an average 13% until 31 March 2106, up from a previously agreed 8%.

The figure is more than twice this year’s average inflation rate of 6.2% and fears are that it will put a damper on an already struggling economy that only missed going into recession last quarter by the skin of its teeth.

But the move, which is intended to help state-owned utility, Eskom, cover ZAR7.8 billion (£433.6 million) in costs that it failed to budget for in the three years to 2013, has also been met by dire predictions that it is simply a taste of more to come.

The issue is that the company, which supplies 95% of the country’s power, faces a further funding shortfall of ZAR225 billion for the five years to March 2018.

As a result, it is currently unable to come up with enough money to service the debt required to pay for the completion of two new, and very necessary, power stations in order to tackle the country’s chronic power shortages.

Last month, the government announced it would put together a financial rescue package, the details of which are due to be announced on 22 October. Ratings agency Standard & Poor’s will then decide whether Eskom’s debt situation warrants its bonds being downgraded to junk status.

Economic impact

To have any real chance of plugging its funding gap though, economists have estimated that Eskom will need to increase its tariffs by at least another 13% per year for the next five years.

But the worry is that this situation will make South Africa increasingly uncompetitive on world markets. It certainly won’t help inflation or manufacturers already hit by rising labour costs and low demand for their products.

Or consumers for that matter, who are struggling with rising food and fuel costs, high levels of personal debt and unemployment rates of around 25%.

So the situation is not good by anyone’s standards – and doesn’t get any better for reading the US Central Intelligence Agency’s World Factbook either, which would appear to back up the IEA’s report.

The Factbook indicates that South Africa’s economy will be unable to grow at more than 3% until Eskom’s new power stations come online, one by the end of this year and the other in 2017, which is obviously a while yet.

The problem is that to make a dent in poverty and unemployment, which both contribute to societal stability, it is widely accepted that GDP needs to increase at twice that rate.

Another contentious issue, meanwhile, is how the country’s electricity is to be generated in the first place.

South Africa currently produces 77% of its energy using coal. It is, in fact, one of the seven largest coal-producing and one of the top five coal-exporting nations in the world. This means that the mineral, being its third largest source of foreign exchange capital behind platinum and gold, is vital to the country’s economy.

But after getting a bad name for itself as the continent’s worst polluter and as one of the world’s top 20 carbon emitters, it pledged to take action, submitting reduction targets to the Copenhagen Accord in January 2010.

South Africa has now promised to reduce national carbon emissions to 34% below 1994 levels by 2020 and 42% by 2025 – should it get the necessary financial, technological and capacity-building support from the developed world, that is.

And so far it seems to be trying to honour that vow. Since December 2011, the country has signed off 64 renewable energy projects, including wind and solar, which equate to more than ZAR100 billion (£5.5 billion) of both domestic and foreign investment.

Energy mix

So while renewable energy accounted for less than 1% of the country’s energy mix in 2012, it is expected to hit a much more healthy 12% by 2020, jumping to 17% by 2030.

According to research released last October by analysts Frost & Sullivan, this scenario would place it among the top 15 countries in the world in terms of renewable deployments.

But it seems that President Jacob Zuma also has a controversial personal interest in nuclear. After promising to purchase a fleet of power stations in his opening address to Parliament in June, following similar statements in his State of the Nation speech in February, he made a mysterious visit to see President Vladimir Putin in Moscow last month.

Immediately afterwards, Russian energy company, Rosatom, announced that it had signed a $50 billion deal with Pretoria to build eight nuclear reactors that would generate 9.6Gw of power by 2030.

The pact was based on a “build now, pay later” vendor-financed arrangement that would see Eskom buying back energy at high predetermined rates for up to 20 years.

But the move led to an outcry, with concerns being voiced over everything from corrupt and un-transparent procurement processes to the sheer cost of the proposals, which some feared could cripple the country as tariffs skyrocketed.

The Department of Energy appeared to backtrack very quickly though, countering that the Russian compact was simply a preliminary agreement on nuclear cooperation as part of a wider tender process that would also involve other countries over the coming months.

The government has since confirmed that Eskom will not act as the owner and operator of the new power stations. This process will instead be led by the Cabinet’s energy security subcommittee, which is chaired by no less than Zuma himself – a man said to regard a nuclear power project as part of his legacy.

A businessman with historically close ties to Zuma has also intimated to South Africa’s Mail & Guardian newspaper that the decision to award the contract to Russia has already been taken, essentially making it a done deal.

But no matter how murky such a set-up may seem, what is clear is that how these various scenarios play out over the next few months will be crucial in terms of the impact on the health of South Africa’s economy for years to come.


South Africa: Land of the Rolling Power Blackout

I can’t think that I’ve witnessed scheduled rolling blackouts since I was a child during the dark days of the 1970s.


But I do remember the inconvenience of what seemed like endless power cuts as the lights were suddenly extinguished and we were bundled off to my grandma’s to indulge ourselves in the warmth of her coal fire.


In a just-in-case kind of way, my mam still insists to this day that her electric cooker has a gas hob so that eating can be assured one way or the other. Such scars run deep.


So needless to say, it was a rather unpleasant blast-from-the past last week when, yet again, the lights went out. After a week or so of relentless, sleeting rain across the entire eastern region of South Africa, which unfortunately included Gauteng, it turned out that state monopoly, Eskom, was suffering a soggy coal problem.


While this may sound like the lamest excuse ever when you’re chucking fossil fuel into a mega-hot furnace, apparently it’s legit – Eskom chief executive, Brian Dames, announced it to the world himself that the power outages were the result of wet coal from opencast mines, which by default were vulnerable to the weather.


To make matters worse, because it was allegedly too costly for the utility to cover its entire stockpile – with anything apparently – the heavy rain had also ended up soaking much of its existing coal supply.


This situation, combined with a portfolio of ageing power stations that are currently under maintenance until a couple of much delayed new installations come online, mean that warnings over how tight energy reserves are, have been going on for months.


In the dark


The upshot of this debacle last Thursday though was that power had to be rationed and a two-hourly rotational ‘load-shedding’, or planned rolling blackout, schedule put in place across the country – a scenario not experienced on this scale since 2008 when a similar debacle cost the South African economy a stonking R50bn (£2.8 billion).


So after things had begun to look hairy last week, businesses were asked to reduce their power consumption by 10%, but it was just too late. We were for it.


And so it was that the full onslaught of this policy to save the national grid from collapse hit my humble abode in Parkhurst a tad before 8pm, but luckily just after I’d had my dinner.


As I scrambled around for my candles hidden carefully away in cupboards that I could no longer find, however, I realised with some trepidation that my house was now apparently unprotected.


As the electric fence and internal security system were currently without power to feed them, I felt distinctly vulnerable – and I’m not usually the neurotic type. But my Beloved was away travelling with work and I was all alone in a city with a shocking reputation for violent crime.


As a case in point, the hard-working guy who comes to do our garden every Monday had been accosted at gun point by a couple of thugs only the week before. He had been withdrawing his monthly wages from an ATM at the time, but in the blink of an eye was left destitute, with rent and nursery fees for his young child to pay for. Awful.


And if I were a robber, I’d certainly have been inclined to take advantage of the fact that it was dark and everyone’s security systems were down.


Hence sitting for the next two and a half hours jumping at every sound while trying to read my book by candlelight – and ensuring that my mobile phone was firmly in my line of sight so that I could alert our private security guard firm, Cortac, should the need arise.


Welcome to Africa


It turns out though that I had nothing to worry about as, according to my Beloved, these systems have 24-hour batteries to keep them going. But I certainly felt more reassured when he was sitting beside me on Sunday night as the power collapsed again for an hour. There’s nothing like (even ephemeral) safety in numbers.


Apparently that particular little incident won’t be the last of it, however. Eskom has made it clear that a combination of the unseasonal on-going rain and expected high demand as winter comes ever closer mean that there could be more scheduled electricity cuts over the next couple of months.


According to a posting on the local Democratic Alliance party’s website – the Eskom one couldn’t seem to offer information on anywhere in Johannesburg’s northern suburbs that I checked anyway –should demand exceed supply again, it’ll mean that the lights will go out in Parkhurst and its environs from 6pm to 10pm on Tuesday, Thursday, Saturday and Sunday nights. Oh joy.


Very sensibly though, a lot of local businesses already seem well prepared – presumably in the wake of similar problems six years ago.


My dentist, for example, assured me that, should the power go out in the middle of my second root canal treatment this year, I had nothing to worry about because he had his own generator. Which was, of course, a blessed relief and did serve to ease my discomfort somewhat.


But he’s certainly not the only one. Our local restaurant and bar area, Fourth Avenue, still seems to be keeping the lights on in the main. While some organisations have their own generators, it seems that others share with their neighbours, while yet others rent capacity to third parties in the same building. Which is all very entrepreneurial of them, it must be said.


As ever though, after the first shock of the crisis, everyone seems to be remarkably sanguine about it all. “Oh well,’ they say, rolling their eyes. “It is what it is. Welcome to Africa.”