I honestly don’t know who is advising the president on energy any more. When his spokesperson, Vincent Magwenya, told Business Day last week that his message to a high-level meeting of cabinet ministers was: “We are in the middle of winter and no-one is going to be tolerant,” the subtext was that he was looking for an end to load-shedding tomorrow.
Anyone who has been following the Eskom story knows the best the country can hope for is a more permanent solution within 24 months as new megawatts, largely in the form of renewables, come on stream via the 100MW embedded generation programme and the awarding of new contracts under the Risk Mitigation Independent Power Producer (IPP) Procurement Programme.
A leader should be managing expectations. By all means, intervene in an illegal and frankly outrageous strike, but tell the country the truth: that successive ANC government administrations have dillied and dallied and dithered their way into this crisis, which is only now finally seeing new megawatts procured — about 15 years too late.
It’s going to be intolerable for the next 24 months for all of us. Best to plan for it. Buy that inverter, install whatever you can afford as a small business to survive, and hope reform continues to show an improved rate of momentum change. If you want immediate solutions, there are options, but these will require painful trade-offs and large dollops of pride being swallowed.
Etienne Rübbers is an energy consultant specialising in renewables and gas — so clearly the twain can meet — and also a management committee member of the SA Independent Power Producers Association. He believes we (the royal we is the major stumbling block here) should seriously consider paying South32 to mothball Hillside and Mozal for anywhere from two to five years to give Eskom, and the SA economy, some headroom to get our electricity supply house in order.
South32’s Hillside is Eskom’s largest energy-intensive customer at 1,205MW. If you throw in Mozal, South32’s other smelter just west of Maputo which is also powered by Eskom, the benefits are obvious: an instant two stages of load-shedding removed and headroom created for Eskom to tackle its backlog in maintenance.
In essence, the suggestion is to temporarily sacrifice Hillside and Mozal and a large part of the SA aluminium industry — roughly 2,000 jobs and lost electricity sales income (though Hillside and Mozal enjoy the lowest-priced electricity, prices negotiated at rates substantially below the standard Eskom megaflex tariff so this could even profit Eskom if it means burning less expensive diesel). The main benefit would be limiting the cost of unserved energy on the economy and the untold damage to consumer and business confidence.
As Rübbers points out, it will make SA’s balance of payments a little less favourable, but only marginally so. Essentially, imported alumina from Australia gets offloaded in Richards Bay/Maputo and smelted at Hillside/Mozal adjacent to the ports, and the aluminium product is mostly exported from the same ports. There are limited interlinkages between the smelters and the rest of the economy.
The benefits are in fact considerable. No more load-shedding. The high cost of unserved electricity avoided. Less diesel used in small, inefficient generators (generators at shopping centres are far less efficient than Eskom’s power stations). Softer issues such as the time saved by people stuck at faulty traffic lights when they could be working, their stress levels, the petrol that is wasted in idling cars in traffic jams, and reduced accidents.
Most importantly, it would allow SA’s economy to grow and it deals with the unquantifiable damage serious load-shedding does to the national psyche, and consumer and business confidence.
It will take some high-level arm twisting to get Eskom to go along with this. It submitted an application to industry regulator Nersa in December 2020 to approve a proposed new 10-year negotiated pricing agreement for Hillside, which was approved around the middle of last year.
While Eskom acknowledges the sweetheart pricing arrangement, it argues strongly in favour of keeping Hillside due to the technical and investment implications of closing it down, saying that “[l]arge base load customers also assist system stability by providing a stable load and predictability to the National System Operator”.
The complexity of the shutdown proposal, as Rübbers rightly points out, is how we pay South32 to mothball its plants for roughly five years. How do you quantify the loss South32 would incur if its smelters were mothballed? There will be a lot of differing views. Another even trickier issue is who pays the money to South32, because the cost of load-shedding to the SA economy does not fall squarely on just one sector.
Frankly, we are in a state of emergency, and while Eskom might scoff at the idea the infrastructure won’t be permanently lost and we need to find immediate solutions in an urgent and transparent fashion that will get us through the next 24 months while the new capacity that is finally being registered with Nersa comes on stream.
Does the president’s team have any better suggestions?
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at Badger@businesslive.co.za.
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