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Power crisis dampened appetite for SA mining equities – Baxter
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26th August 2008
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South Africa’s electricity crisis has dampened foreign appetite for local mining equities, because of its impact on current production and future growth, thus slowing down capital flows, Chamber of Mines chief economist Roger Baxter said on Tuesday.

He urged all sectors, particularly the commercial and residential sectors, to make a special effort to save electricity, and thereby save jobs and grow the economy. Baxter also added that a comprehensive review of the incentives for industry, government, parastatals and households to become more energy efficient was required.

Speaking at an electricity conference, he said that the government had to take a strategic approach to the way that power was rationed, and how growth was facilitated going forward. “Key criteria in adjudicating rationing or new connections include issues such as the labour and export intensity of industries are crucial.”

He said that seeing as South Africa had to attract some R140-billion in capital flows to cover the current account deficit in 2007, and having noted that mining was a key magnet for attracting capital flows to South Africa, the industry could not be asked to bear the brunt of the electricity demand reduction.

“The problem is that mining and a few other large industrial customers are carrying the full burden of the 10% demand reduction. This is an industrial policy decision made by Eskom with significant implications for this country’s economy – especially for exports and employment,” said Baxter.

Mining companies accounted for about 35% of the market capitalisation of the JSE. He also noted that South Africa’s mining industry accounted for about 32% of merchandise exports and about 50%, if one added secondary beneficiated mineral exports to that.

Mining has a high electricity-to-production relationship, thus given the high usage of electricity in pumping, cooling and ventilation, the 10% decline in electricity supply to the mining industry meant that only production electricity could be cut, which cuts production by about 10%.

Baxter said that this meant that not only did South Africa lose the benefits of higher export volumes and values, which weakens the rand, but it also has the double whammy of losing ground on the financial account.

He noted that mining companies had also done a lot to help Eskom replenish its coal stockpiles – perhaps in detriment to the country’s export industry.

Edited by: Mariaan Webb


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