LARA SMITH Governments’ lead times for approving new power plants in African countries are often too long, resulting in a failure to realise the full potential of valuable mining projects
There needs to be ongoing open dialogue between the corporate sector and government to ensure that energy supplies for mining projects are secured and stabilised timeously to take advantage of valuable economic opportunities in Africa, says Johannesburg-based consultancy Core Consultants founder Lara Smith.
“Governments’ lead times for approving new power plants in African countries are often too long, causing good projects to go to waste because commodity prices drop during the lag before power solutions are implemented. This leaves investors with a distressed asset and government with unrealised tax or royalty revenues, as well as a wasted opportunity for providing employment for their citizens.”
Smith notes that a lack of sufficient power supply is the dominant challenge facing mining companies operating in Africa. This is further complicated by a shortage of straightforward options for addressing this shortfall, with a general lack of corporate and fiscal control resulting in the continent having the highest rate of economic crime in the world – with corruption rampant among power utility decision-makers.
“This has caused an overall stalling with respect to setting up power supplies in Africa, which has been further aggravated by a lack of willingness by many governments to take on the responsibility of providing power. Instead, it is widely expected that power should be supplied by the mines – but then governments are also often unwilling to negotiate a fair settlement or royalty arrangement, which slows down the process considerably.”
Smith highlights that mines are, thus, often caught between a rock and a hard place, especially in times of low commodity prices when it becomes difficult for investors to justify financing mining projects where there is no existing energy infrastructure. In terms of mining projects that do manage to attract investors, a life-of-mine long enough to ensure payback that will cover the capital outlay involved in implementing power generating, transmission and distribution infrastructure is, moreover, required.
“An unreliable power supply creates a huge cost burden for mines – assets remain idle, the operating company’s reputation is at risk and end-users are concerned if a company has to keep on declaring a force majeure.”
The remoteness of most mining projects means that on-site generation is required; traditionally, solutions driven by conventional fossil fuels, such as diesel, oil, coal and natural gas, have been the focus in this endeavour. However, Smith highlights that the international mining sector is increasingly employing energy-saving strategies and renewable solutions in its power infrastructure. These renewable-energy plants are usually developed, funded, built and operated by third-party developers as captive plants, with the mine committing to buy the generated electricity at a fixed price over a certain period.
“Sub-Saharan Africa is starting to unlock the potential of renewable energy, with hydropower, for example, accounting for one-fifth of the region’s power supply. However, less than 10% of the estimated technical potential is being used,” says Smith.
She points out that the Democratic Republic of Congo has a significant hydropower- generation capability, but is failing to fully exploit its natural resources, as a result of political risk, limited finance and weak transmission connections with neighbouring countries. Cogeneration represents another underused avenue for power generation at mines in Africa, with anhydrous cogeneration plants capable of providing a significantly low price per kilowatt hour. Unfortunately, Smith points out that insufficient steam is generated by African countries’ manufacturing industries to supply such plants.
She stresses that the continent’s governments also need to think realistically about their prospects, noting that many African governments are pushing for beneficiation, despite the energy-intensive nature of this process.
Smith declares that there are many viable solutions to Africa’s power crisis, but the obstacles preventing their implementation need to be addressed and removed for these to be realised.
“This is possible only through the willingness of the private and public sectors to engage and, thereby, drive the strategic growth of mining activities that have far-reaching benefits for many African countries.”