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It could have been so much worse. When Eskom warned the mining industry last Friday to curtail operations, some predicted a long shutdown. A letter signed by Eskom CEO Jacob Maroga (see extract on this page) suggested that the crisis could last for up to six weeks.
Maroga’s letter was unexpected, coming a day after the mining industry and other sectors had met and agreed to power savings and minimal cuts. But after high-level meetings this week, a new stabilisation pact suggests a more structured plan is in the offing.
The mining industry and other sectors are offering to cut power consumption by 10%, while Eskom has committed to supplying the mines with 90% of their energy requirements. Industry would also be given four hours’ notice should there be any interruptions.
The latest deal between industry and Eskom has certainly raised hopes of a return to higher capacity by this weekend. It rests on three legs. The first is a four-week plan to cut national demand by 4000MW — 10% of national supply. The mining industry has already agreed to this. This programme will start in February and is aimed at industry.
The second leg is a three-month programme to reduce demand by 3000MW, affecting all consumers, including households. Negotiations are at an early stage and will need subsidies for initiatives such as solar heating.
Finally Eskom is sending a team to Brazil to investigate how that country successfully implemented a power rationing programme, comprising both penalties and incentives.
Industry can only hope that the stabilisation plan works. They’ve had a bitter taste of what a full shutdown means.
At the emergency levels supplied over the past weekend, the mines had to shut down the bulk of their operations. A full day’s loss of production is estimated by the Chamber of Mines to result in forgone sales of about R1bn. If supplies and procurement are incorporated, the numbers could rise to between R1,5bn and R2bn/day.
A theoretical exercise suggests that should power be lost for a full week, gold production will fall by 650000oz and platinum output by 96000oz.
Gold Fields, the largest SA gold producer, says it lost about R50m/day in production, while at the same time having to carry fixed operating costs.
The industry is now gearing up to work with 90% power supply, but it’s impossible to compute the impact on production. Top-rated gold analyst David Davis believes the situation with the mines is unlikely to be protracted. “It’s not really quantifiable. A 10% reduction in power will not give a 10% loss in production.”
Davis says while the gold industry has already achieved energy savings of 18% over the past four years, it could facilitate a further 10%. “They could stop work on a certain shaft, or stockpile ore and wait for better days. Given the rise in gold and platinum prices, that could be positive.”
Momentum Group analyst Wayne McCurrie adds: “In essence their costs remain constant. They might have lost as much as 2% of annual production, but that’s pessimistic.”
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