JOHANNESBURG (miningweekly.com) – The Chamber of Mines (CoM) on Friday opposed State-owned power utility Eskom’s proposed 19.9% tariff increase application, stating that the increase would send South Africa into a vicious downward spiral of higher electricity prices, lower growth and lower electricity consumption.

Presenting at the National Energy Regulator of South Africa’s (Nersa’s) hearings, in Gauteng, CoM chief economist Henk Langenhoven said Eskom would be a key contributor to a no growth economy and credit downgrades – and the mining industry would take a significant knock.

A 20% hike in tariffs could result in a decline in economic growth and the cumulative opportunity cost in job losses of over 600 000.

For mining, the contribution to gross domestic product (GDP) will decline by between 5% and 9%.

“The impact on loss-making mines will be disastrous, putting tens of thousands of jobs in jeopardy. The chamber estimates that the proposed increase would result in a R3.21-billion increase in costs, which would mean that the operations of around 66% of all gold and platinum mines would be unsustainable, and could result in around 48 000 additional job losses,” Langenhoven said.

This would result in the government debt-to-GDP ratio rising from just over 50% now to 75% by 2021 and over 104% by 2030 with all its consequences,” he added.

The CoM suggested Nersa pursue “the least damaging solution” to deal with Eskom’s impending cash crunch.

“Short-term solutions must be found to prevent Eskom from failing – and the economy suffering irreparable damage – and any short-term solution must be conditional on a significant structural adjustment programme,” Langenhoven added.

The CoM said Eskom’s large budget shortfalls, which risked the entity not being able to service its debt in the short term, were of its own making.

“The industry is highly skeptical of Eskom’s claims that it will deliver higher efficiencies, which it defines as lowering its headcount, virtually only through natural attrition; keeping primary energy costs down; and sacrificing its desired rate of return on capital,” Langenhoven concluded.