South Africa's power shortages start to bite

24 January 2008


South Africa’s electricity supply crisis, which has led to frequent power disruptions in the country and beyond its borders, is starting to have a serious effect on industry, especially its power hungry mining industry. It could also chase away investors, denting growth and weakening the rand, according to economic analysts. Industries and residential areas have been hit by daily electricity cuts as state power utility Eskom struggles to cope with growing demand.

Most market players have not fully priced-in the effects on the economy of the power cuts, which could be even worse than the impact of global market turbulence if the problem persists. Estimates of the cost to the economy run into hundreds of millions of rands, adding to the pessimism brought on by the steep falls in financial markets triggered by growing fears of a US recession.

South Africa's current account deficit stood at 8.1 percent of GDP in the third quarter of 2007 and is likely to stay this way as the country spends billions of dollars on imports to develop its infrastructure.

Eskom plans to spend 300 billion rand to boost flagging power capacity over the next five years and had already warned that it might be forced to ration electricity in the meantime. It is now importing power from Mozambique, Zambia and the Democratic Republic of Congo and was also working at bringing back into operation three power stations shut down in the 1980s.

A gaping current account deficit has been a persistent worry for the rand, which has fallen 6 percent against the US dollar so far this year.

Eskom is by far the largest electricity generator in Africa and until recently has been a net exporter, but now the country’s supply problems are being felt iby its neighbours.

Zambia's copper output for 2008 could be hurt by its own power crisis, forcing the rationing of power and suspension of operations at copper mines, officials are saying. “If the power shortages continue, then we are in for a rude shock in terms of production," Frederick Bantubonse, the head of the Zambia Chamber of Mines told the Reuters news agency.

Bantubonse said plans to lift finished copper production to over 1.0 million by 2010 could be slowed down, adding that Zambia must boost investment in power generation. Zambia's largest copper producer Konkola Copper Mines (KCM) has suspended operations due to flooding caused by recurring power outages, as mines faced a sixth day of low output owing the power outages.

Zambia's power deficit has widened to 528 MW from 250 MW last year. Democratic Republic of Congo power utility Snel is to supply about 150 MW of the 210 MW Zambia had requested for its copper mines.

"Peak national demand for power is 1300 MW, but we are only able to generate 772 MW. Most of this power is being directed to the mines," said Monica Chisela, a spokeswoman for the state power utility Zesco. Zesco had tried unsuccessfully to import 200 MW from Eskom and a further 200 MW from Snel. Eskom has problems of its own, and says that it would give first priority to supplying the country before selling power to other countries.

In South Africa itself, Anglo Platinum's plans to expand its mining operations, which had been due to be completed by 2010, are being put in jeopardy by power shortages that Eskom predicts could last up to five years. Simultaneously Chamber of Mines assistant adviser Dick Kruger said that the shortages made it likely that final decisions on new mining ventures would be delayed until the planned Medupi coal-fired plant comes on stream in 2013 to provide a reliable supply.




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