CAPE TOWN (miningweekly.com) – Mining and metals company South32 says it is concerned about the challenges that have increasingly threatened the stability of South African power utility Eskom and needs to ensure the continuity of supply of its coal to Eskom in the long run.
South32’s South Africa Energy Coal (SAEC) company includes four mining operations, as well as three processing plants, producing energy coal for the domestic and export market.
“Eskom is the single biggest risk to the South African economy,” South32 COO Mike Fraser told the Investing in African Mining Indaba, in Cape Town, on Monday.
Eskom’s financial woes, which are set to hike electricity tariffs, were a challenge to energy intensive users. Fraser cautioned against high tariff increases.
“The price of electricity is key to compete in an industrial environment. The cost of power weighs on South Africa’s impact to draw foreign investment. We risk a downward trend in electricity sales to customers. Eskom cannot afford this.”
He said the consequences could jeopardise the South African economy and slow the creation of jobs.
Fraser said Eskom needed to implement an industrial tariff to attract investment.
“Tariff reform must take place urgently to protect the existing industry and to have the right environment to attract investors.
“Eskom is the engine of South African economic growth. A robust power utility will benefit everyone, in particular our mining industry, which relies heavily on competitive power,” said Fraser.
He said Eskom needed an equity injection from the government, together with a cost reduction programme. The twin challenges of overstaffing and a shortage of technical skills needed to be sorted out.
“A shortage of technical skills needs to be remedied with training as a matter of urgency to improve technical performance,” said Fraser.
He suggested that Eskom should be broken up to ensure appropriate management focus in key areas.
“The Eskom board and CEO, Phakamani Hadebe, have made excellent progress in recent months, but significant work is still needed to stabilise the Eskom business,” said Fraser. He said the mining industry was ready to assist in sharing its collective expertise for the future sustainability of the power utility.
SAEC became a standalone business, managed separately from the South32 Group, on April 30, 2018. Fraser said the move had allowed the company to simplify the way it worked, leading to $50-million of annual cost savings.
Fraser said the ownership of SAEC was being broadened in line with the group’s commitment to economic transformation in South Africa.
“It will become a black-owned and operated business. This will best support the long-term sustainability for the business.”
Communities and employees would also be able to share value in the business, in keeping with the spirit of the Mining Charter, said Fraser.
He said the company had already made strides in developing small enterprises and expected demand for coal to remain resilient.