Nearly a quarter of SA’s mining jobs will be lost because of the additional costs coming from increased electricity tariffs over the next three years as well as the financial burden of the carbon tax.
The consequences of the tariff increases, which start at 9.4% in the first year, on the gold and platinum mines will be the loss of more than 90,000 jobs at the end of three years, said Minerals Council of SA chief economist Henk Langenhoven at a briefing on Monday, pointing out this was lower than the 150,000 if Eskom had succeeded with its application for 15% tariff increases.
Roger Baxter, CEO of the council, which represents more than 90% of SA’s mineral production by value, used the word “disaster” for the first time in relation to the ongoing difficulties at state-owned Eskom in supplying industry with electricity and the apparent inability to find a sustainable resolution to the problem.
Compounding the mining industry’s frustrations with Eskom was the decision by the National Energy Regulator of SA to give the utility permission to increase its tariffs by more than inflation over three years.
Eskom, which supplies more than 90% of SA’s electricity, has battled to meet demand due to unplanned outages at a number of its coal-fired power plants. The utility is also unable to service its debt load of more than R419bn from revenue, raising red flags about its financial sustainability.
Compounding the mining industry’s frustrations with Eskom was the decision by the National Energy Regulator of SA to give the utility permission to increase its tariffs by more than inflation during the next three years.
The net effect of Eskom’s increases over three years will be electricity prices 29.5% higher than in 2018 and there are major negative impacts on the mining sector, which consumes 30% of Eskom’s electricity.
Just two gold mines would remain profitable or marginal, producing little more than 20 tons of gold, an inconsequentially small amount considering the peak of 1,000 tons in the 1970s when SA was the world’s single-largest source of the metal.
Considering the consequences of the carbon tax on marginal mining companies and the increase in costs, another estimated 11,000 jobs could be lost, bringing total job losses from the tariff increases and the tax to 101,000, the council said. This equals nearly a quarter of SA’s 456,000 mining jobs in a country where almost one in three people is unemployed.
The council argues the tax is unnecessary to curtail carbon emissions because the negative impact of Eskom’s erratic electricity supply and 538% tariff increase over the past decade meant SA could have a 13% reduction in greenhouse gases by 2025 and by up to 33% a decade later, said Baxter.
Bigger concern
As deleterious as the price hikes were on the mining industry, there was a bigger concern for potential investors in SA’s minerals, said Baxter.
“It’s not just about the incredible variability and unreliability of supply, but it’s the predictability of future prices. The future price trajectory is the deal breaker for the industry because it’s hell of a difficult to plan future investments on smelters and refineries in SA based on an electricity price that has consistently been all over the place,” he said.
He said there was “pent-up” supply of 2,000MW of power with independent power producers just waiting for the go-ahead from the government, while mining companies wanting to put in solar plants were frustrated by regulatory hurdles for any such plant bigger than 1MW and Eskom’s pricing on using its transmission lines that made this a completely unrealistic alternative to grid power.
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