The Energy Intensive User Group (EIUG) of Southern Africa has said that the latest media reports surrounding proposed tariff increases by Eskom of at least 14.6% over each of the next five years would put further jobs at risk in the country.
Whilst recognising that Eskom had to be healthy, Shaun Nel, executive at the EIUG, said that the increase in tariffs stymied growth and in some cases, referring to the ferrochrome producers, made business completely uncompetitive.
Nel admitted that the commodities sector would be particularly hard hit if it was unable to pass on these increases to customers.
Cost escalations, declining production and a platinum price that has reverted back to long term pricing levels has already seen two of Aquarius Platinum’s mines placed on care and maintenance as well as major cut backs in expenditure by the likes of Royal Bafokeng Platinum and Eastplats.
Lonmin has said it was treading carefully and would be running scenarios on its expenditure plans and largest platinum producer, Anglo Platinum, is in the process of reviewing its operations.
Rockwell Diamonds said it too would be looking to cut jobs and costs at its Tirisano mine in the North West province due to prevailing market conditions.
With coal and iron ore prices having receded from last year’s levels, the bulk miners will in all likelihood also feel the cost increases.
Government’s push to see more downstream beneficiation of minerals becomes even more difficult to achieve in the event of the proposed electricity price hikes.
Explaining the vicious circle created, Nel said that the increase in tariffs would lead to a slowdown in growth and less demand by users from Eskom. A yardstick of this he said was Eskom’s demand growth that was only 0.2% last year.
Hence, this would mean less industrial users over which Eskom’s target revenue could be recovered once again pushing up tariffs.
The impact would not end there said Nel as residential users are cross-subsidised in volume terms, by the industrial user base. If this base were to shrink then residential users would end up having to pay more.
“We need to look at ways to encourage growth” said Nel.
With reports that Eskom’s proposed hike could climb to 19% if carbon taxes or capital for more power plants was added, Nel said that this proposal was premature as government still had to indicate what its plans were in terms of a carbon tax.
On a positive note, Nel said that a five year plan as proposed would give companies greater insight as to what the price basket was likely to be but as to whether or not the 14% was adequate or not would remain to be seen.
“The challenge we have is that we haven’t had time to interrogate the assumptions” said Nel.
Nel remained confident however that Eskom would engage it on the matter as it had done previously.
Established in 1999, the Energy Intensive User Group (EIUG) of Southern Africa is a voluntary, non-profit association of energy intensive consumers whose members currently account for approximately 44% of the electrical energy consumed in South Africa says the association’s web site.