Tag Archive | Electricity

Fuel price controlled by seasonal US supply

US refinery shut downs affect fuel price…..

US refineryThe current spike in the price of petrol is due of a number of international issues  compounding together but the primary cause is that at this time of year in the United States, a number of major US refineries close down for maintenance in order to prepare for the US summer surge in fuel sales.

This was said by Dr Wolsey Barnard, acting DG of the department of energy (DoE), when he introduced a briefing to the portfolio committee on energy on its strategy for the coming year.

In actual fact, the meeting had been called to debate the promised “5-point energy plan” from the cabinet’s “war room” which did not eventualise, the minister of energy also being absent for the presentation as scheduled. It appeared that the DoE presentation had been hastily put together.

“Price swingers” make perfect storm

Dr Wolsey BarnardDr Barnard said that it could be expected that the price of fuel would be extremely volatile in the coming months due in main “geo-political events” affecting the price of oil, local pricing issues of fuel products and possibly even sea lane interruptions. Price would always be based on import parity and current events in Mexico, Venezuela and the Middle East would always be “price swingers”, he said.

On electricity matters, his speciality, he avoided any reference to past lack of investment in infrastructure, but said that he called for caution in the media, by government officials and the committee on the use of the two expressions “blackouts” and “load shedding”.

Same old story

“Over the next two years”, he said, “until sufficient infrastructure was in place, there would have to be planned maintenance in South Africa” and referred to the situation in the US as far as maintenance of refinery plant was concerned. He said that also “unexpected isolated problems” could also arise with ageing generation installations, during which planned “load shedding” would have to take place.

He said he could not imagine there being a “blackout”.

Opposition members complained that the whole electricity crisis could be solved if some companies would cease importing raw minerals, using South African electricity at discounted prices well below the general consuming manufacturing industry paid, and re-exporting smelted aluminium back to the same customer. They accused DoE of trying to “normalise what was a totally abnormal position for a country to be in.”

Billiton back in contention

One MP said, “Industry was in some cases just using cheap South African electricity to make a profit”. Suchaluminium smelter practices went against South Africa’s own beneficiation programme, he said, in the light of the raw material being imported and the finished product re-exported. “It would be cheaper to shut down company and pay the fines”, the DA opposition member added, naming BH Billiton as the offender in his view.

Dr Barnard said DoE could not discuss Eskom’s special pricing agreements which were outside DoE’s control  and “which were a thing of the past and a matter which we seem to be stuck with for the moment.”

High solar installation costs

Dr Barnard also said that DoE had established that the department had to be “cautious on the implementation of solar energy plan” as a substitute energy resource in poorer, rural areas and even some of the lower income municipal areas.  DoE, he said, “had to find a different funding model”, since the cost of installation and maintenance were beyond the purse of most low income groups.

In general, he promised more financial oversight on DoE state owned enterprises and better communications.   There were plenty of good news stories, he said, but South Africa was hypnotising itself into a position of “bad news” on so many issues, including energy matters. He refused to discuss any matters regarding PetroSA, saying this was not the correct forum nor was it on the agenda.

Still out there checking

On petroleum and products regulation, the DG of that department, Tseliso Maquebela, said that non-compliance in the sale of products still remained a major issue. “We have detected a few cases of fraudulent fuel mixes”, he said, “but we plan to double up on inspectors in the coming months, especially in the rural areas, putting pressure on those who exploit the consumer.” The objective, he said was reach a target of a 90% crackdown on such cases with enforcement notices.

Maquebela added that on BEE factors, 40% of licence applications with that had 50% BEE compliance was now the target.

Competition would be good

On local fuel pricing regulations, Maquebela said “he would dearly like to move towards a more open and competitive pricing policy introducing more competition and less regulations.”

fuel tanker engenOn complaints that the new fuel pipeline between Gauteng and Durban was still not in full production after much waiting, Maquebela said the pipeline was operating well but it was taking longer than expected to bring about the complicated issue of pumping through so many different types of fuel down through the same pipeline. “But we are experts at it and it will happen”, he said.

Fracking hits the paper work

On gas, particularly fracking, DoE said that the regulations “were going to take some time in view of all the stakeholder issues”.

On clean energy and “renewables” from IPP sources, DoE stated that the “REIPP” was still “on track” but an announcement was awaited from the minister who presumably was consulting with other cabinet portfolios regarding implementation of the fourth round of applications from independent producers.

Opposition totally unimpressed

In conclusion, DA member and shadow minister of energy, Gordon McKay, said that the DoEgordon mackay DA presentation was the most “underwhelming” he had ever listened to on energy.   Even the ANC chair, Fikile Majola, sided with the opposition and said that DoE  “can do better than this.”

He asked how Parliament could possibly exercise oversight with this paucity of information.   DoE representatives looked uncomfortable during most of the presentations and under questioning it was quite clear that communications between cabinet and the DoE were poor.

When asked by members who the new director general of the department of energy would be and why was the minister taking so long to make any announcement on this, Dr Wolsey Barnard, as acting DG, evaded the question by answering that “all would be answered in good time”.

Other articles in this category or as background
Energy gets war room status – ParlyReportSA
Medupi is key to short term energy crisis – ParlyReportSA
Integrated energy plan (IEP) around the corner – ParlyReportSAenergy legislation is lined up for two years – ParlyReportSA

Posted in Electricity, Energy, Enviro,Water, Facebook and Twitter, Fuel,oil,renewables, LinkedIn, Mining, beneficiation, Public utilities, Special Recent Posts, Trade & Industry, Transport0 Comments

Energy gets war room status

Cabinet creates energy crisis committee…..

Editorial…….

eskom logoIn retrospect, for the cabinet having had to resort to establishing an energy war room is probably a good thing inasmuch that a meeting of minds appears to have taken place at all levels of the ANC Alliance on energy matters. The situation is indeed serious.

The message from business and industry that the “energy crunch” is not only immensely threatening to the economy appears to have got through, accompanied probably by the realisation that so many regular failures, power or otherwise, are threatening to the ability of the ANC to stay in power.

Foggy outlook

Perceived at first as an issue mainly affecting the rural poor, the failure of Eskom to deliver on most of its promises; the bumbling of the department of energy on independent power producer parameters and the to-ing and fro-ing of cabinet on the adoption of nuclear energy into the energy mix, has been somewhat of a pantomime.

For months we have been reporting from Parliament on the ambivalence of Eskom and the reluctance of the department of energy and public enterprises to chart a course on energy.

The whole truth…

NA with carsHowever, what is a matter of concern is the fact that in all those lengthy power point presentations and detailed reports to parliamentary committees that we have witnessed or read, the ball has been completely dropped on the energy issue and badly so.   At the very least Parliament were not given the full facts, particularly in the case of Eskom, thus threatening the parliamentary oversight process.

Deputy President Ramaphosa has now been designated to oversee the turnaround of SAA, SAPO and Eskom. The cabinet statement says regarding this, “Working with the relevant ministries, SAA will be transferred from the department of public enterprises to national treasury. The presidency will closely monitor the implementation of the turnaround plans of these three critical SOCs that are drivers of the economy.”

Maybe next year

It is comforting therefore to some extent to know that such a “war office” has been established and that cabinet has adopted a five-point plan to address the electricity challenges facing the country but it just seems incorrect that a relatively empty, tired statement such as “more cross cutting meetings to meet the challenges facing  the country will be adopted” was all that could be added in the form of action before ministers disappeared for the Christmas recess, including, we understand, the contractor’s staff at Medupi.

elec gridIt seems that nobody is in charge over the same period nor interested enough to be there and nobody is really looking much beyond January 15, when South Africa starts switching on again.

 

Perhaps in 2015, some reality will return to South African politics and amongst the governing party. They may learn that there is a direct relationship between being in power and keeping the power on and we foresee many more direct confrontations on this issue and others in Parliament during the coming year.

 

 

Posted in cabinet, Electricity, Energy, Finance, economic, Fuel,oil,renewables, LinkedIn, Public utilities, Security,police,defence, Trade & Industry0 Comments

Eskom crosses its fingers

Medupi:  Eskom on final run ….

eskomCollin Matjila, interim CEO of Eskom, told a joint parliamentary portfolio committee on energy and public enterprises that Eskom had learned a number of lessons in the building of coal-based power stations, probably the most important being the need for a suitably qualified and capacitated contractor oversight team to handle the complexity and extent of any project such as the construction of Medupi.

Although power from the new plant was to be introduced to the grid this Christmas Eve from Medupi, and incrementally more onwards, full power would only be happening at stable levels by winter 2015.

With both the boiler contractor and control and instrumentation contractor problems causing delays and a strike affecting between 40% -70% of the workforce, the 6-month delay had been recognised by both treasury and cabinet in financial re-calculations.

Minister notes….

Also addressing the committee, public enterprises minister, Lynne Brown, stressed that in her view “the corner had been turned at Medupi”.  She said that cabinet had approved a package to “support a strong and sustainable Eskom to ensure energy security”.   The inter-ministerial committee, which was comprised of finance, public enterprises and cooperative governance and traditional affairs, had now reviewed all options before them both on electricity and energy generally.

Eskom then stated that the second unit, Kusile would be added to the grid in a start-up process in the first half of 2015 and Ingula, the third and smaller hydro unit, in the second half of 2015.

No rest with summer

Matjila cautioned MPs that additional capacity would be needed during summer this year, despite any reduced seasonal demand.   This was because of the need to accommodate “planned” outages, which were set to take up 10% of full capacity being supplied.

By referring to full capacity, this was a theoretical maximum availability, Matjila said, subject to the reality of unplanned outages.  Eskom warned of a possible inability to meet demand throughout the remainder of the financial year, as distinct from seasonal timing, if it should be financially restrained in its use of it expensive-to-run standby open-cycle gas-turbines.

More price increases

Recovery of unbudgeted costs in this area for the year under review were part of the problem facing Eskom, Matjila said, and the recent announcement by the national electricity regulator, Nersa, of a rise of just short of 13% in electricity prices in April 2015 was no doubt motivated by this factor amongst others.

However, he said, Eskom may also have to deal with a higher maintenance in December, including half station shutdowns for three stations. He qualified this in a later Engineering News report which stated that 32 of Eskom’s 87 coal-fired generating units required “major surgery”, whilst four were in a “critical condition”.   November was also critical, he said, if all did not go as planned.

Despite continued questioning by parliamentarians on the state of progress at the second “New Build” power station, Kusile, no specific answers were provided by either Eskom or the minister other than the fact that Kusile had experienced “protected” and “unprotected” strikes in contractor workforces during the year.

Strikes

Matjila stressed that the workforce was back on site at both locations. “Additional resources had been mobilised to mitigate delays, he said, and additional shifts have been introduced 24 hours a day, 7 days a week, to accelerate progress on site.  Eskom was liaising with contractors to deal with any issues which had the potential of causing further delays, he said.

In his overall concluding remarks, Matjila said a five-point recovery plan had been introduced to improve the performance of the Eskom coal-fired fleet, with the utility having reaffirmed its objective of “returning to an 80-10-10 operating model, which implied 80% plant availability, 10% planned outages and 10% unplanned events across a period of a year.”

Outside inputs

On the situation with regard to the independent power producers (IPP) programme, Matjila said he was aware that the department of energy (DoE) had processed  over one thousand applications during the three IPP 3-stage bidding process and this had stretched DoE resources considerably.

He said it had been a complicated process to secure sustainable competitive prices in respect of the particular technologies involved. What had to be also factored in was the burden of hidden costs of storage and back-up which had to be borne by Eskom, not the IPPs.

Also the proximity and availability of energy supplies on the supply in providing the “appropriate infrastructure” was being dealt with and overcome.

It was important, Matjila said in conclusion, for Eskom to ensure that potential and online suppliers met grid code requirements and he was aware that some IPPs were struggling with this process.
Other articles in this category or as background
http://parlyreportsa.co.za/energy/medupi-key-short-term-energy-crisis/
http://parlyreportsa.co.za/cabinetpresidential/eskom-says-medupi-and-kusile-will-have-great-local-benefits/
http://parlyreportsa.co.za/energy/eskom-warns-on-costs-of-new-air-quality-rules/
http://parlyreportsa.co.za/energy/dpe-reports-on-eskom-and-it-utilities-to-parliament/

Posted in Electricity, Energy, Enviro,Water, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, Land,Agriculture, LinkedIn, Public utilities, Trade & Industry0 Comments

DTI gives warning on investment climate

High administered prices a threat…

42X90693In an apparent warning to the economic cluster, a deputy DG at department of trade and industry (DTI), Garth Strachan, warned that South Africa was reaching “a tipping point” where administered prices, either levied or taxed by the various state departments, were so high that it was making the cost of doing business in South Africa totally impractical.

 

There was neither an attractive climate for investors because of high state administered prices, he said, nor did it make any easier DTI’s developmental programme in support of the NDP and attracting investors.

In a frank presentation to the portfolio committee on trade and industry, he qualified DTI’s position during his candid commentary with the caveat that as far as the regulation of administered prices were concerned, such as electricity, port and rail freight charges, road transport costs and water tariffs, that these were not the core competencies of DTI although they were adversely affecting DTI’s current IPAP 6.

Undermining investment climate

He noted later in his talk that in the successive implementation of various IPAPs, including the current industrial plan, DTI had found that administered prices constituted a total impediment to economic development.   In fact, now in 2014, they were providing a “serious economic shock”, as he put it, to the viability and competitiveness of the manufacturing sector.

Garth Strachan commented that the addition of carbon tax could push South Africa to the ‘tipping point’, unless the proposals were with “carefully calibrated policy interventions.”

As far as electricity was concerned, it was DTI’s view that the actual problem lay in the funding structures of local government, especially where no allowance was made for infrastructure upgrading and maintenance. Water shutdowns were also an increasing problem, he said.

He told parliamentarians that in one instance a global investor had experienced 140 electricity and water shutdowns. He did not indicate over what period.

International comparisons

He said that on electricity tariffs, whereas in 2009 when compared to China, the USA, Canada/Quebec, Abu Dhabi, Kazakhstan, India and Russia to give a fair geographic spread, South Africa had been with a group that had the lowest in prices, it now had the “gold medal” for being the highest of all and by 2020 the situation would be exacerbated unless something dramatic took place.

Strachan said that in the World Bank Report of 2013, SA port charges were amongst the highest in the world; container charges being 710% more than the global norm and automotive cargoes costing a premium of 874% more than the global norm. This detrimental fact was compounded by port and rail freight inefficiencies to local destinations.

He told parliamentarians that in DTI’s view it was extraordinary that exports were virtually subsiding raw material exports such as iron and coal.  In the case of coal, this was 50% below the global norm and iron ore approximately 10%, according to 2012 figures, these being the latest DTI could get.

This led, Strachan said, to the unfortunate situation where the country exported iron ore at a net loss to the country but imported girders, cranes and containers, for example, at possibly the highest in the world.  It was impractical to have subsidies passed on to exporters of primary products penalising importers of necessary needs, he said.

On carbon tax, he dismissed any “one size fits all” programme as contributing to the overall problem by making things worse and on climate change generally, he said that DTI was already working towards the protocols agreed by South Africa “through a range of measures to support energy efficient systems and investment in energy.”    These were part of DTI’s manufacturing enhancement programme, he noted.

He said there should be a shift in pricing “in favour of less carbon intensive sectors which are more labour intensive and value adding”. He quoted particularly steel, polymers and aluminium, which he said should be considerably below import parity levels.

Nullifying NDP objectives

Garth Strachan concluded that with manufacturers already going out of business, the issue of administered prices was probably the most important issue facing South Africa at the moment in the search to create more jobs.

Parliamentarians noted with concern what DDG Strachan had illustrated in his review. Many called for a joint portfolio meeting on the subject with public enterprises, transport and energy, despite the subject of administered prices also not being a core function of the trade and industry committee. For example, it was noted, they had no parliamentary right to influence such bodies as Transnet and Eskom, nor deal with treasury on tax and tariffs.

 

Posted in Cabinet,Presidential, Electricity, Facebook and Twitter, Finance, economic, Labour, LinkedIn, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Medupi is key to short term energy crisis

Eskom bogged down with Medupi …

medupiActing director general of the department of energy (DoE), Tseliso Maqubela, told Parliament before it went into short recess that once Eskom’s new Medupi power station starts supplying the grid the country would have “turned the corner”.

“It is well known we are challenged on electricity”, he said, adding that the fresh view is being taken on the independent system marketer’s operators (ISMO) system which would contribute to recovery in the medium term through the addition of independent power producers (IPPs).

DG of energy policy, planning and clean energy, Ompi Aphane, in his presentation told parliamentarians that, as per the State of Nation Address (SONA), “vigorous attention is now being given to the establishment of the operator’s office to implement independent power supplies.

Financial  certainty, they say

On the subject of infrastructure build generally in the electricity sector, financial certainty was now being restored in the energy industry, Maqubela said, with the result that R120m in energy investment is now planned, “some of which has already come in and projects started.”

The overall plan was to divide power supply between Eskom and IPPs on a 70-30 basis through the national grid by 2020, decisions on refining and gas replacing diesel also being necessary in the short term in terms of a revised energy mix to meet future demand.

Other immediate focus areas for DoE were to increase access to electricity; increase “the momentum” of the installation of solar units; finalise the integrated energy plan; address maintenance and refurbishment programmes; “strengthen” the liquid fuels industry and facilitate decision taken on the nuclear programme.

Interface problems

A major issue being tackled was the in the area of household connections, according to the DoE presentation. Dr Wolsey Barnard, in charge of energy projects and programmes, explained that whilst Eskom was often bringing power to an area, the municipal backbone installations were either not ready or municipal skills were lacking.  DoE had recognised the problem and was busy trying to bridge this gap, he said, with skills training or by working on temporary permissions from municipalities with Eskom assistance.

However, Dr Barnard said it was encouraging that whereas the position ten years ago could have been described as hopeless, the situation was now specific and targeted to small areas, in most cases the most difficult remaining.

At the moment, 1,5m additional households will be connected by 2019 but as this is still insufficient to meet the target of universal electrification by 2025, additional funds are now being allocated by the state and plans made.

Barnard calls for co-operation

In order to achieve this, it was essential, Dr Barnard said, that the modalities regarding national, provincial and local government powers be revised on the ability for Eskom to assist in view of the lack of skills and the handling of appropriation funding.

He called for urgent attention to the fact that power installation funding by DoE to municipalities should be “ring fenced” and accounted for. This area had to be focused upon urgently, he noted.

He said that too many times Eskom had supplied power to an area only to be told by a municipality that there were no funds for distribution boxes or no skilled persons available to connect lines.  Dr Barnard said he was aware that the economic planning department were “in the picture” and legislation was planned despite the constitutional barriers but again he wanted to emphasise that this issue had to be resolved urgently.

EFF members asked if there were plans to specifically assist the unemployed with electricity connections and wanted a list of all power cuts to the different areas and the reasons for these.

Priorities from both sides

ANC member Ms Makwbele-Mashele asked the DG that with all the emphasis on “greening”, the high cost of gearing industry to meet new emissions and pollutants standards and the recently introduced air quality regulations, whether in his opinion these issues were hindering the country’ energy and industrial development.  The ANC also asked, as the fuel price seemed to be “out of our hands”, whether Sasol could increase production locally.

The DA wanted more detail on the exact steps at present underway to increase co-generation of energy to solve the immediate energy crisis.   This was in the light of the fact that the ISMO process had initially failed simply because DoE could not foresee the end state of independent power production, they said.    They also felt that a paper was needed to get clarity on how the integrated energy plan and the integrated resources plan locked into the NDP.

The DoE promised to respond to MPs questions in writing through the chair as the minister of energy had taken up most of the debating time available.

Other articles in this category or as background

  • http://parlyreportsa.co.za//bee/electricity-connections-target-far-short/
  • http://parlyreportsa.co.za//energy/electricity-tariffs-billiton-tells-its-side/
  • http://parlyreportsa.co.za//uncategorized/major-metros-open-up-on-electricity-tariffs/
  • http://parlyreportsa.co.za//energy/eskom-issues-alerts/

Posted in cabinet, Electricity, Energy, Facebook and Twitter, LinkedIn, Special Recent Posts0 Comments

New minister focuses on Eskom strategy

Eskom strategy goes to economic cluster

In the light of recent Eskom rolling blackouts, new minister of public enterprises and past Western Cape premier, Lynne Brown,  promised that Eskom will have a “comprehensive sustainability strategy” submitted to the newly appointed economic cluster by the end of June, this cluster including new finance minister, Nhlanhla Nene, and new energy minister, Tina Joemat-Pettersson.

The arrival of such a report on his desk has not confirmed in any way by minister Nene in recent statements regarding the budget vote.

Despite the Eskom complaint that it is on the receiving end of a R225bn revenue shortfall for the current multi-year determination tariff (MYPD) for 2013 and 2018, fixed at 8% by the regulatory authority Nersa instead of the 16% asked for by Eskom, it might appear that the electricity giant has successfully prevailed upon Nersa for a further 5% effective after only one year of the new tariff structure from comments during portfolio committee meetings during the new Parliament’s first few weeks.

We told you so

Eskom’s new sustainability programme will include new funding options, acting CEO Collin Matjila has said, but funding aspects will no doubt be affected by the recent downgrade in ratings, a fear of this being expressed in the appeal against the Nersa award played out by past CEO Brian Dames in the parliamentary energy and public enterprises portfolio committees last year.

Fitch, as quoted recently by Reuters, noticeably excluded energy sustainability issues as the reason for downgrading but indicated that it was more the result of mining labour unrest and manufacturing index dips. Now, the IMF has commented unfavourably on SA’s economic growth and whilst again no fingers were specifically pointed at energy shortages, it is acknowledged by most commentators that international funding requirements will not benefit from such sentiments.

IEP needed

In addition to financial sustainability issues, Eskom says also it needs to know soon the final findings of the integrated energy plan being finalised so as to complete its own future strategies, some clue having been provided by the new Gas Plan recently published by DoE.

Minister Lynne Brown said the matter was indeed her priority to get such strategies to cabinet whilst at the same time she needed time to acquaint herself with all outstanding issues in her new cabinet post.

Other articles in this category or as background
http://parlyreportsa.co.za//parliament-sa-this-week/cabinet-fifth-sa-parliament/
http://parlyreportsa.co.za//energy/eskom-taking-sa-to-the-edge-eiug/
http://parlyreportsa.co.za//energy/eskom-the-elephant-in-the-room/
http://parlyreportsa.co.za//energy/eskom-determined-to-sustain-mypd-asking-price/

Posted in cabinet, Electricity, Energy, Facebook and Twitter, LinkedIn, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Electricity connections not making targets

No hope of meeting Zuma’s promises…

elec poleThe inability of municipalities and local government to bring electricity to the poor and for the department of energy (DOE) to meet its promised target of electricity to all households by 2015 was a subject which dominated the DOE’s annual report to Parliament recently. New Minister of governance and traditional affairs, Pravin Gordhan, will have this issue before him as he tackles local government problems as will new minister of public enterprises, Lynne Brown.

Ms Nelisiwe Magubane, DG of DOE was reporting on the activities of her department for the 2o12/13 period and neither the minister of energy, Ben Martins, or his deputy, was present, much to the chagrin of portfolio  committee energy committee chairperson, Sisi Njikelena, who reported angrily on the subject.      DOE was reporting on its annual report and second quarter achievements.

Success with avoiding Middle East for oil

In noting that the year had been dominated by fluctuating oil prices, Ms Magubane noted that South Africa had succeeded in switching 41% of its oil imports to the African continent.

DG Magubane also reported that the electricity supply situation had improved in the country and the department’s own household electricity connection programme had also improved, mainly thanks to Eskom, but there was a large backlog that still existed due to lack of accountability by municipalities. This was a worrying factor for the country, she said. On this subject, further reports followed.

Other DOE targets met

Dr Barnard

Dr Barnard

On clean energy as far as the year was concerned, she reported that in August financial close had been received from twenty eight of the independent power producer (IPP) bids: the biofuels blending regulations had been drafted; the draft pricing arrangements started; and a nuclear safety report compiled and submitted as a result of lessons learnt from the Fukushima disaster.
 Dr Wolsey Barnard took up the issue of DOE’s poor record on electricity connections and said that bearing in mind the lack of skills and training at local government, it “was a miracle that South Africa had achieved so much”.

Aside from the fact, he said, that the government financial year was different to the municipal year, which made a mockery of funding programmes and targets, he said dealing with municipalities was “extremely difficult”  but nevertheless “for each seventy seconds of each day there was a connection some here in South Africa”.

Treasury must ring fence local funding

On the problematic relationships with local government, Dr Barnard said DOE was doing as much as it could “but you can pull a rope but you can’t push it and that was the trouble in dealing with local government officials”.   He said he looked forward to the day when National Treasury’s promised Bill “ring fencing” funds was promulgated “and then we might get somewhere”, he said.

He noted that each municipality had to sign a contract to get funding in the first place, providing business plan, “but sometimes we get to a place to install for a lot of homes built and there is no sub-station or any hope of connecting to the national grid”.

Cabora Bassa dam debt at R1

nelisiwe magubaneMs Magubane confirmed that in the annual reports a loan to Mozambique for the Cabora Bassa dam had been written down to R1 with the permission of Treasury. This loan was in respect of money loaned in the ‘sixties and it was clear that the Mozambique government could not pay. However, the question of re-payment of this loan would be re-raised, she said.

On queries why there seemed so little interest in gas exploration by government in Mozambique, whereas other countries seemed to have “got their foot in first”, Muzi Mkhize, chief director of hydrocarbons, said that “unlike other countries, we do not subsidize our national oil exploration effort and, in any case, the quest of dealing with countries was a foreign affairs matter and country to country relationships had to come first.”

SA to meet Mozambique on gas exploration

Sisi Njikelana said that this was a totally unsatisfactory answer and called on Mkhize for a better explanation to his committee.  Mkhize admitted that South Africa was “meeting Mozambique on a government to government basis on gas exploration matters in mid-October”.

When asked what had happened to the nuclear safety report, deputy director general of nuclear, DOE, Zizamele Mbambo, said that this was a security document but it had been acted upon.

The Eskom representative was asked to speak on the subject when a question was raised about the Koeberg Nuclear plant by a Cape Town MP, and the Eskom official reported that a “fortnightly nuclear safety committee met in the area with all representatives present” and that the meeting was chaired by a person drawn from the local community.

Refer to articles in this category
http://parlyreportsa.co.za//public-utilities/municipal-free-basic-services-slow-build/
http://parlyreportsa.co.za//energy/dpe-

Posted in BEE, Electricity, Energy, Enviro,Water, Facebook and Twitter, Finance, economic, LinkedIn, Public utilities, Trade & Industry0 Comments

Integrated energy plan (IEP) around the corner

IEP a few months off

Benedict MartinsAn integrated energy plan (IEP) for South Africa covering the full energy spectrum will definitely be published before the year end, according to the director general, department of energy (DOE), a fact also confirmed by minister Ben Martins when addressing an energy conference in Johannesburg recently.

Ms Nellie Magubane, when addressing the relevant portfolio committee under chair, Sisi Njikelana who had called for an update on the energy plan, was accompanied by minister Ben Martins at the time and present for his first meeting in Parliament. The minister acknowledged and highlighted the importance of unfolding the plan as part of the country’s investment credentials as soon as possible.

Continuing energy story

Whilst re-confirming that the strategy was still at public participation stage, DG Magubane said there was “no end-state tomorrow” with the plan but rather a reflection of a “phased approach as the country’s appetite for energy as it  develops”.

The process began, she said, with the 1998 White Paper, the development of independent powers system operators (ISMO) and the accompanying ISMO Bill also awaiting the production of the IEP, the National Energy Act in 2008 and regulations on resources that have followed. The IEP this year would start the energy initiative rolling to be followed by gas development plans.

Not just supply factors

In the years since apartheid, said Magubane, when energy had different directives which were focused primarily on just maintaining supply, what had changed significantly were economic, environmental and social imperatives which now were being drawn in and superimposed. “The fixation with supply capacity is not now the only criteria to be considered in the energy paradigm”, she said.

The liquid fuels shortages of 2005 and subsequent electricity disruptions in the years up to 2008, Magubane said, had shown the need for coordinated planning to avoid disparate plans and contradictory initiatives in the sectors of electricity, liquid fuels and gas.

A twenty-year road map for the liquid fuels industry was in progress by the department, she said, and a gas planning infrastructure plan was to be developed once the extent of resources were better understood.

International view

Through time, and above all because of energy security, Magubane said, scenario planning has changed in South Africa to take in security, environmental and climate response factors. In conjunction to long-term climate change policy and agreements, lessons had been learnt from the IEA, Austria, Belgium, Canada, the Czech Republic, Italy, Japan, the Netherlands, Norway and Spain, she said.

When asked what had been learnt from a study tour of the USA, DG Magubane said that the primary aspect learnt there was the success of establishing localised energy resources, focusing on what mattered most to the USA and reducing dependence on imports. We learnt, for example, that we must not try a change the impossible or employ unrealistic factors but move according to what was a fact locally. “For example, South Africa has a lot of coal but little water and these factors have to be built in, not ignored.”

She said that the overseas studies where different economies and different state policies were involved, due note that the position had changed radically in South Africa had to be acknowledged, as had been the case in many of those countries.

Control of resources

“For example, government has come from a position where in SA we were determining the appropriate level of involvement with the liquid fuel levels industry during transition to a rapidly globalising picture, to now having to maintain a strategic role in shaping all key sectors of the economy.”

In response to queries from parliamentarians, she acknowledged that the IEP to be produced would not incorporate any powers to the minister, who “would rather be able to exercise any powers affecting energy matters through normal regulatory enforcement contained in the many pieces of legislation that applied to the energy sector, such as the Energy and Gas Acts.”

Pricing restructuring

On pricing issues as far as the IEP was concerned, Ms. Magubane responded to questions that national treasury figures had so far been the base of determinations but in the light that submissions and input from stakeholders which were to emerge from the process now in progress, the issue of price factors could in all probability be reshaped.

In answer to complaints that that there was still no indication from her, or DOE, where the country was going in hydrocarbons, electricity or renewables and what pricing factors were involved for urgent investment needs, the chair asked that DOE be given time to develop the final report or “everything would go in different directions”.

DG Magubane assured parliamentarians that the final plan would enable everybody to weigh up infrastructure plans with government policy, even bearing in mind that the position is constantly changing given such issues as hydro input from neighbours, gas exploration in various forms and global tensions.

previous articles on this subject
http://parlyreportsa.co.za//uncategorized/mineral-and-petroleum-development-bill-grabs-resources/
http://parlyreportsa.co.za//cabinetpresidential/president-obama-and-power-africa/
http://parlyreportsa.co.za//cabinetpresidential/nuclear-goes-ahead-maybe-strategic-partner/
http://parlyreportsa.co.za//energy/petrosa-has-high-hopes-with-the-chinese/

Posted in Electricity, Energy, Facebook and Twitter, Finance, economic, Fuel,oil,renewables, LinkedIn, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

President Obama and Power Africa

Power Africa and a $7bn involvement

In an excellent speech to a young audience at the University of Cape Town but seen the world around, the words “Power Africa” were heard by many for the first time from none other than the President of the US and although by no means did the financial implications have any comparison to the US Marshall Aid plan to Europe in 1945, this is without doubt a much played down mini-version in energy terms.

It comes with an initiative already started; US business plans in energy to Africa already in motion to an estimated tune of $9bn….. and thats just a start, said President Obama.    Energy, he said, is the key to Africa and electricity to all homes is the hope for all Africans. Without electricity there is no possibility that education can take root and therefore no way out of the poverty cycle, he said.

Electricity for all

If anything of value therefore from a business viewpoint came out President Obama’s trip other than some very warm-hearted gestures of friendship, it was certainly the extraordinary news that he personally, and that presumably means in fact the US Administration, has plans for a state $7bn initiative to enhance access to every household with electricity across Africa by tapping the continent’s vast energy resources and plenty of money by attracting international US investment.

By reading up on Forbes Magazine, which presumably has one of the best lines on what the US Administration is up to financially, their story on Power Africa appears to be already a well established initiative in the US.    For the most part, it is most detailed.   The story ends, however where perhaps it should have started.

In the last paragraph, after a giving a picture of the structure of the Power Africa programme and the names of the many partners US partners contributing to the initiative with finance and skills, the Forbes article ends with the observation……

“The recent discoveries of oil and gas in sub-Saharan Africa will play a critical role in defining the region’s prospects for economic growth and stability, as well as contributing to broader near-term global energy security.  Yet existing infrastructure in the region is inadequate to ensure that both on- and off-shore resources provide on-shore benefits and can be accessed to meet the region’s electricity generation needs.”

And there, possibly, we have it.   A sort of Mozambique Channel gold rush.   Yet we are assured by no less than President Obama himself that the USA has enough shale gas not to be importers but shortly exporters.

The Chinese robotic approach

However, to assume the US is looking for new oil fields for its own use or not would be to miss the point.   Trading in Africa with Africans was the point in Obama’s speech and hopefully, as the US President says, the USA can add value to what is made in South Africa before it is exported and not just exploit the resources in Africa, as does he says China and others of their ilk. The general feeling remains that China will put in power plants just to get out the resources. Either way, we get power – but the US way seems more sustainable and of use to economic and social needs of Africa in the long run.

Power Africa, Obama says, will, in, addition also “leverage private sector investments” beginning with an additional $9 billion in initial commitments from private sector partners in sub-Saharan Africa.   Most of the talk is about land-based electricity grid support, off grid projects, renewable energy projects and supplies to marginalised communities and there was a clear inference in the article that nobody in the US was going out of their way to invest in more coal mines.

The article says most importantly, “Although many countries have legal and regulatory structures in place governing the use of natural resources, these are often inadequate.  They fail to comply with international standards of good governance, or do not provide for the transparent and responsible financial management of these resources.”

“Power Africa”, Forbes continues, “will work in collaboration with partner countries to ensure the path forward on oil and gas development maximizes the benefits to the people of Africa, while also ensuring that development proceeds in a timely, financially sound, inclusive, transparent and environmentally sustainable manner”

In other words there has to be certainty.

ParlyReport this week focuses on the introduction to the South African  public of the Mineral and Petroleum Resources Development Amendment Bill on that very subject. One would hope that the intentions of government to have a stake in oil and gas exploration success stories do not frighten investors off and that the amendments to the Act stay fixed when agreed, give certainty and are properly regulated and the MPRDA changes are not the precursors of the mess that such regulations are to our North.

Posted in Cabinet,Presidential, Electricity, Energy, Enviro,Water, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments

NERSA reports on an anxious year in energy

Unlicensed pipeline operations a problem….

Phindile NzimandeCommenting that the petroleum and gas industry did not seem to take licensing particularly seriously but the electricity industry did, Phindile Nzimande, CEO of the National Energy Regulator (NERSA), gave a characteristically outspoken report to the parliamentary committee on energy on NERSA’s strategic and plan until 2016.

She noted that  NERSA had investigated sixty seven suspected unlicensed activities in petroleum pipeline activity, only four of which were found to not require a licence. Thirteen petroleum storage licences were revoked.

NERSA not changing plans

Nzimande said that NERSA found no reason to alter their five-year plan as originally submitted in 2012 and NERSA would continue with its mandate of transparency, neutrality, predictability and independence. It has been a busy year, she said, not the least of which was the extraordinary amount of work generated by Eskom tariff application, the national hearings process and the time involved in decision making.

In the area of electricity generally, 183 municipal and private distributor tariffs were given approval and 47 energy generation licences granted. 9 distribution licences for connection facilities between Eskom and an independent power producer (IPP) were also granted.

Sasol back to listed tariff next year

In piped gas, Nzimande told parliamentarians that the maximum prices for such were dealt with in regard to Sasol, this being the last year of the “maximum price” arrangement. In petroleum pipelines, the Transnet annual increase was set at 8.53%, again with much controversy, and decisions were made on 60 storage and loading facilities.

There was still a major lack of credible gas anchor clients in piped gas, Nzimande said, nor was there an established and regular supply chain and serious competition, resulting in high prices for the poor. NERSA had much work to do in this area, she said, as far as compliance monitoring and enforcement was concerned.

Costly multi-product line

In the area of petroleum pipelines, Nzimande said the “prudency” investigation into the cost of the multi product Durban/Gauteng pipeline was a major undertaking and NERSA was also involved with Transnet on the issue of high port charges which had become a national issue.
The security of supply of petroleum to inland areas was also a matter of deep concern, Nzimande said, and NERSA was “working with stakeholders”. When asked how NERSA was monitoring this she said the matter was very much up to the investors concerned but she was aware that department of energy “was grappling with the issue” and NERSA was closely following the matter which had to be taken in to consideration on pricing matters.

Local government problems

On tariffs generally, Nzimande said a major issue facing NERSA was the legal issue of regulatory relationships with municipalities and their powers in respect of enforcing licensing and pricing structures. This was to be resolved shortly.

When asked if Eskom would be allowed to re-visit the issue of their tariff structure finally allowed and appeal, Nzimande said that she eskom logocould not say that that such a move could be excluded as a legal part of the multi-year price determination process. The chair excused her for answering questions on the Alstrom and Hitachi legal wrangle on the Medupi power plant currently under construction by Eskom but she acknowledged that NERSA was aware of Eskom’s problems and financing issues.

NERSA and NNER?

When asked why NERSA and the structures of nuclear regulatory matters were not combined into one regulatory body, Nzimande replied that international agreements and the structure of the nuclear global industry was specific on this issue and required specific nuclear regulators with specific mandates for their own countries to be established. The work and relationships of a nuclear regulatory authority were very different, she said.

She agreed with complaints regarding difficulties in the petroleum storage area and confirmed that the regulations may have to be re-written in this regard. She was specific that NERSA would look into the issue of tariffs for storage, since one member complained that the current high cost structures could well be acting as a disincentive to investment.

Associated articles archived
http://parlyreportsa.co.za//energy/durbangauteng-pipeline-still-three-years-behind/
http://parlyreportsa.co.za//energy/nersa-gets-countrywide-thumbs-down-to-eskom-increases/

Posted in Electricity, Energy, Enviro,Water, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Electricity tariffs: Billiton tells its side

Benefits amounted to massive subsidy….

Mhkwanazi BillitonThe cumulative benefit to Eskom as a result of BHP Billiton buying out Eskom’s excess capacity of electricity generated over the 14 years until the recent 2008 crisis amounted to a figure in excess of R26bn, Dr Xolani Mkhwanazi, chairman of the South African company, told parliamentarians of the trade and industry committee.

What is more, he said, when Eskom’s near collapse occurred in January that year due to heavy rains, flooded collieries and low coal supplies, BHP Billiton mothballed for some time its Bayside aluminium plant with no compensation and with the purpose in mind of preventing further national blackouts.

Protecting grid together

The company now works, he said, on an ongoing basis with Eskom, both managing and protecting the grid by adjusting demand from its Bayside and Hillside aluminium smelters. No compensation is asked for

In answer to MPs further questions on this subject, he said, “We know we are operating in an environment where there are currently conditions of restraint that have to be exercised.”   He repeated again that such restraints were carried out as a joint exercise to protect the grid as a whole.

These facts were made public to parliamentarians this week after months of questioning by MPs during numerous portfolio committee meetings at which Eskom said it could not discuss the special rates negotiated with large power users, known as NPAs or negotiated power agreements, particularly that which had been negotiated some years ago with BHP Billiton.

Shielding Billiton

Dr Mkhwanazi confirmed that agreements in the past between BHP Billiton and Eskom were related to the international price of aluminium to the Rand/Dollar exchange rate, thus shielding BHP Billiton from local market related problems since the formula when applied meant that in times of high aluminium on a weak rand, lower prices are paid for power.

It had to be borne in mind that such agreements were conducted when Eskom was in highly favourable reserve margin situation, he said. A new NPA has now been struck with BHP Billiton, Dr Mkhwanazi confirmed under questioning.

When asked by opposition ID member Lance Greyling from the energy portfolio committee, who attended the meeting as a guest MP, whether under the new tariff arrangements the contract was still linked as before on a risk sharing basis based on the global price of aluminium, thus shielding BHP Billiton, Dr Mkhwanazi at first did not answer the question

When pushed again on the subject in a second round of questioning, Dr Mkhwanazi replied, “Yes”.

Why Mozambique?

When asked why BHP Billiton had gone into aluminium smelting at Mozal in  Mozambique when Richards Bay appeared undercapitalized at one point, Dr Mkhwanazi pointed to the very advantageous incentives offered by that country some years shortly after peace had returned to the territory.

Lucas Msimanga, asset president, BHP Billiton Aluminium, said that the group’s operations covered three main resources – coal, aluminium and manganese.

Manganese was centred around Hotazel in the Northern Cape and the larger reserves of the Mamwatan open-cut and Wessels underground operations, both in the Kalahari.

It was a fact that 80% of the world’s high grades of manganese existed in South Africa but, said Msimanga, both were in remote situations thus involving high transport cost. Consequently, said Msimanga South Africa had about only 11% of the world market based on pricing factors.

BHP Billiton had five collieries and supplied 25% of Eskom’s coal.

Aluminium eats electricity

On aluminium operations, he said the group was the eighth largest aluminium producer in the world and the two smelters were originally constructed to “absorb the excess generation capacity of Eskom in the late 1980s when Eskom had a reserve margin of 40%.”

Msimanga reminded parliamentarians that aluminium was little more than solid electricity, the furnaces taking calcined petroleum coke, mixed with molten pitch to 1100ºC over 21 days, the resulted aluminium anodes going through electrolytic reduction processing “pots” for a further 27 days. To be in aluminium industry, he said, you were deep into the energy industry, bearing in mind BHP Billiton was also a coal producer.

In manganese, the M14 BHP Billiton furnace was probably the largest in the world and exercises currently being carried using CO gas to the onsite power plant raising self-sufficiency in energy was an important exercise at present being conducted. This was aimed at a hoped for reduction in CO2 footprint.

Associated articles archived
http://parlyreportsa.co.za//energy/new-energy-legislation-is-lined-up-for-next-two-years/
http://parlyreportsa.co.za//energy/dpe-reports-on-eskom-and-it-utilities-to-parliament/
http://parlyreportsa.co.za//bee/eskom-black-owned-coal-mining/

Posted in Electricity, Energy, Enviro,Water, Fuel,oil,renewables, Land,Agriculture, Public utilities, Trade & Industry0 Comments

DPE reports on Eskom and it’s utilities to Parliament

Eskom issue raises capitalisation….

The department of public enterprises’s, Tshediso Matona, director general of DPE, clearly indicated that the apparently now solved labour deadlock at the Eskom Medupi power station was seriously occupying minds in DPE when public enterprises director generals were responding to Parliament on state-owned companies (SOCs) in the light of the state of nation address (SONA) recently delivered by President Zuma.

Indications were that the troubled Eskom construction site and the residue of issues arising was and probably still is of greater concern to DPE than issues at such as utilities as SABC and SAA, also reported on.

If the consumer doesn’t pay the lot……

On the recapitalization of SOCs generally, Matona said that if Eskom recapitalisation was not going to come from the tariffs, alternative capitalisation would have to be resorted to. This was also the problem with South African Airways and other SOCs. These companies needed sufficient capitalization to carry out their mandates and it was a matter that involved DPE greatly in their discussions with treasury.

Matona told parliamentarians that focus was being given to the challenges faced by Eskom at the Medupi power station, where work was at one stage completely stopped due to strikes. Mr Matona told the Committee that much had to be done to improve communication lines. Latest news was that Eskom had moved their financial director, Paul O’Flaherty on site.

Complexity of contracts

The minister of public enterprises was coming up with several initiatives to resolve the crises in the long term, said Matona, much of the problem being the complex nature of the projects and the fact that their complexity made them prone to delays.

Dialogue had therefore to be encouraged and he commented that “the minister was playing a major role.”

Main plan is NDP

On general issues, DPE said it was heavily focussed on “articulating the relationship between the National Development Plan (NDP) as instructed in SONA”.  Matona said this did not mean abandoning such other instruments as the New Growth Path and Industrial Policy Action Plan but that the NDP acted as a “vision” for the department and all plans and visions were being integrated.

Other issues discussed by Matona with parliamentarians dealt with the recapitalization of state-owned companies and the development of further broad based black economic empowerment (B-BBEE) initiatives within DPE.

Land restitution

Matona said that there was a need for a complete change of approach with regards to land restitution. The overcoming of current administrative and bureaucratic blockages was a most important item. It was to be dealt with shortly. On the issue of the compliance to 30 day payment of creditors rule, Matona said that this had been particularly successful and DPE was proud of what they achieved.

On the issue of investment programmes, Matona said DPE was setting up a “project management office” in collaboration with the Development Bank of Southern Africa (DBSA) to monitor infrastructure projects. DPE was now to call a supply development summit in March 2013 at which Eskom and Transnet would present their plans in terms of supplier development with DBSA present.

Posted in Electricity, Energy, Finance, economic, Labour, Public utilities, Trade & Industry, Transport0 Comments

Parliament gives birth to ISMO system

ISMO  to get Eskom’s transmission assets…

In practical terms, the transfer of electricity transmission assets (as distinct from the grid itself) from Eskom into the body of a new government utility known as the Independent System Market Operator (ISMO) has begun in theory.

This follows the agreement of the portfolio committee of energy to process the ISMO Bill in phases in the light of the fact that in practice whilst the exercise has only just commenced “on the ground”, nevertheless, a regulatory environment in which to transfer Eskom transmission assets in the course of time is needed.

Eskom at helm of exercise

The committee acknowledged such a transfer is in fact a lengthy and highly technical process, on the whole completely supervised and finally staffed by Eskom staff, they themselves being transferred to the new entity.

The state law advisors (SLA) present at a recent meeting of parliament’s energy portfolio committee agreed that such a “phased in” approach to the Bill was possible but with careful drafting of a time frame or “framework” to accompany the process.

SLA needs certainty on process of writing changes

This was providing each clause of the Bill before Parliament, said SLA, had the both the agreement and political sanction of the committee beforehand, enabling the SLA to re-write the Bill with certainty.

The purpose of moving in such direction was to provide an enabling environment to the initial phases of creating such a statutory body as an ISMO and at the same time providing clear intent and certainty in the marketplace that such a process was due to take place.

Some reservations were expressed in opposition circles that an operating environment would be particularly difficult for industry and commerce to go forward in with only a partially completed legal and regulatory environment present. Independent power producers (IPPs) were finding it difficukt to strategise without the playing field being defined. It was stated also that agreement on all aspects of the establishment of an independent transmission operator had not yet been agreed to by all parties.

However, the consensus was, with the agreement of SLA, that movement forward could be established in terms of a timing framework being written into or accompanying the Bill as far as the implementation of the portions of the Bill were concerned.

Meeting presidential requirement stated in SONA

Thus Parliament could meet the presidential requirement stated by President Zuma in the state of nation address (SONA) that the ISMO Bill be created as soon as possible and whilst it was appreciated that much of the creation of such a state utility as an entity could happen much of the detail such as the transfer of assets and the question of operational ability would be a much slower and detailed process.

Meetings have now taken place over the next few weeks re-drafting the Bill on this basis and a “B” draft version of the Bill produced clearly defining a portion for a timing framework and one for the usual definitions and establishment provisions.

Posted in Electricity, Energy, Public utilities, Trade & Industry0 Comments

Port charges and inefficiencies leaving SA behind

Transnet port charges far too high…..

portsharboursEscalating administered prices in SA’s manufacturing system including port charges that were amongst the highest in the world were amongst the subjects discussed during a colloquiun called by Parliament’s portfolio committee on trade and industry.

The meeting was called by Joan Fubbs, the PC trade and industry’s chair and in responding director general of department of trade and industry (DTI) Lionel October said these high costs pointed at Transnet were undoubtedly coupled with “significant logistical inefficiencies” to form a major reason for the country’s inability to compete in global export markets.  Transnet’s tariffs were far too high, he said and were contributing to high import costs in most sectors.

The good and the bad

He said there were some successes recorded recently, such as South Africa being high on the list of best places to invest in automobile assembly plants, but decreased demand from traditional trading partners, coupled with the fact that “container and automotive cargo owners faced price premiums of between 710% and 874% above the global norm. “Such facts were leaving South Africa as an uncompetitive nation”, he said.

During a rigorous and frank debate on the multiple shocks facing manufacturing in South Africa, which were stated as ranging from rising electricity prices to the costs involved as a result of unstable labour-relations, a gathering of Eskom officials, Transnet executives, South African Local Government (SALGA) representatives, the electricity regulator NERSA, and the department of trade and industry (DTI) gathered to debate the current picture facing the SA manufacturing sector under the chairmanship of Parliament’s trade and industry portfolio committee.

Electricity charges vary from one to another

In addition to existing other and well established problems in the electricity transmission and generation area, DTI’s deputy director Garth Strachan, weighed in saying that there were complete anomalies in tariffs charged either to members of the same sector of industry and to manufacturing plants existing next door to each other.

Strachan said DTI had examples where one manufacturer was facing certain price increases in electricity and another factory “right across the street” was paying a tariff more than double.

He said that whilst global recession might have played a part in the current negative situation mostly arising from “bunched up” administrative prices from state utilities, some thinking “outside of the box” was now called for if South African manufacturing was to gain any traction and contribute to growth in a meaningful manner, thus creating more jobs.

Next to New York comes SA

marineReturning to the high port cost issue, Strachan said that Cape Town, Port Elizabeth and Durban port terminals had the dubious honour of following Charleston, Baltimore and New York, as the top high-cost terminals worldwide, mainly as a result of excessive cargo dues charged.

Returning to electricity charges, he concluded by saying that one of the biggest problems facing South African consumers was the considerable publicity given to the NERSA announcement that Eskom had been restricted to an 8% hike, which had given the impression to consumers that “this was the end of the story”.

Yet manufacturers still had to face up to municipal mark-ups, he said, both in the case of urban and peri-urban situations, a matter which had not been discussed on a national basis nor any guidelines established.

Dry bulk goods to be target

On the matter of port charges, Transnet’s Mohammed Abdool said Transnet was applying to the ports regulator for a complete re-structuring of tariffs applying to containers, dry bulk goods and manufactured and beneficiated goods.

He said a complete “rethink” on the objective of encouraging the export of beneficiated goods had taken place, coupled with the principle that Transnet would move from becoming one of the lowest rental charging landlords in the world by re-aligning its land based rentals by upwards of 46%.

Abdool said the new suggestions would result in up to 43% reductions in total port revenues for containers, whilst dry bulk exporters would go from a current 18% contribution to about 33%. All this from April next year which was given as a possible starting date.

NERSA will control municipal incenses

Still on price hikes and specifically on electricity mark-ups, NERSA responded to DTI comments and confirmed that it was obligatory for Eskom not go above the 8% allowed but that agreed limits would be allowed for each municipality or local authority as per agreement made or being made. No deviations would be tolerated and the case brought forward by DTI of two adjacent manufactures with vastly differing electricity rates would be investigated.

Touching up the recent decision to fix the Eskom price at 8% increase, NERSA said that in their view it was not correct for South African consumers to pay for massive reserves and financial safety margins on Eskom’s balance sheet and that Eskom should be run like any other state utility in an atmosphere of total adherence to the principle that where costs are concerned the interests of the consumer must be borne in mind.

SALGA must be committed

Joan Fubbs, chair of the committee, then sought a verbal pronouncement by SALGA to all present into Parliament, both stakeholders and members, that no deviations from the NERSA allowances to be agreed as reasonable mark-ups by their members would be accommodated by SALGA.

SALGA spokesperson, Mthobeli Kholisa, in charge of infrastructure development,  said there was no other system in place in most local authorities to pay for such items as street lighting, pumping of water services or handling of waste facilities. However, such an undertaking was  given by him.

Eskom chips in

Eskom presentations added little that was new to the situation, other than spokesperson for Eskom, Hillary Joffe, said that Eskom was “reserving its comments” on the situation until it had re-studied the entire financial situation but asked for an inter-governmental task team to be set up to align municipal tariffs and called for a plan to ensure that municipalities had sufficient fiscal support to maintain infrastructure and essential social services in the long term.

DOE warns on China

On the rising costs of fuel prices, department of energy’s deputy director general, Tseliso Maqubela, said  that oil and gas exploration would play a large part in South Africa’s energy future but that the unseen and hidden player in South Africa’s structural and economic future remained the economic giant China.

With vast reserves of cheap coal, China had not yet entered the market, he said, and when this occurred it would amount to a “game changer” in every respect, affecting not just the energy scenario for South Africa.

April looks better

On prices generally, he said that things were looking better for April but that oil and gas prices were long-term issues in general and current factors at play would not affect the situation in the short term.

He said exploration would probably would remain, by and large, in the hands of private ventures for years to come. He said that the costs of exploring for oil using one rig could amount to US$1m to 3m for one day alone and “that kind of money does not come easily to a state utility”. Maquebela said that the country owed the present private owned refineries much as they stabilized the chemical industry and saved much in imports but warned that they also faced enormous recapitalization costs in the near future.

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Posted in Finance, economic, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments

Eskom taking SA “to the edge”- says EIUG

EIUG says review of Eskom strategy necessary….

eiuglogoMike Rossouw, chairman of South Africa’s Energy Intensive User Group (EIUG), says South Africa has reach a “tipping point” in terms of electricity prices and that not enough attention is being given by government to the potential effect of damage to productive sectors of the economy with consequent risk of demand contraction and revenue collapse.

Writing in the Business Day, Rossouw, who represents major groupings of large power consumers such as paper and pulp, motor vehicle and steel manufacturers, called for a review to consider urgently new technology innovation in power sources; the validity of a substantial, expensive and inflexible nuclear programme and much more investigation into alternative fuel options such as gas.

Casualties ahead

EIUG stated it represents some 44% of the total electricity demand in South Africa and Rossouw complained that already the country has had to watch its ferrochrome industry lose its place as world leader to China in the last few years because of “global ineffectiveness on the electricity pricing issue”.

Foundries are shutting down, he said, and he blamed government for its lack of “an holistic approach in dealing with Eskom’s price application.”  He said that South Africa “cannot afford to get this one wrong” and called for NERSA and the minister of energy to take into account an investment and operating climate that should have more regulatory certainty.

”Government through NERSA must extend affordability to industry on power issues and accordingly the state must re-think its position on the effects of Eskom’s 16% hike per year for five years on the economy”, he said.

Looking back

Rossouw noted that the Eskom application will take the price of electricity “to about 128c/kWhr, an overall increase of a huge 540% over a 10-year period to 2017 with prices have already increased by some 200 % since 2007.

“Electricity cannot be treated as a source of revenue nor as a vehicle that allows municipalities to recover their losses”, he said. “10% increase is a figure that is enough to allow Eskom to continue viable operations”.

Calling for less “bulking up of Eskom’s balance sheet to meet rating agency expectations”, Rossouw stated that Eskom’s MYPD(3) application to NERSA contains only “limited disclosure” but, nevertheless, NERSA, he says, does in fact have access to the full story and maintained that the regulator should react by balancing affordability against the Eskom capital expansion programme.

In the article, he repeated the call that much that much more attention should be given by DOE to what appears to be a “highly inflexible nuclear power generation programme” and “more investigation carried out into alternative fuel options such as gas.”

Posted in Electricity, Energy, Finance, economic, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

Manufacturing fighting to survive in SA, MPs told

Manufactured goods industries struggling with rising costs.

Manufacturing Circle, CEO, Bruce Strong, told parliament that with electricity costs increasing 170% in five years but other BRICS countries decreasing such as Brazil by 28%, the SA purchasing managers index was at a three year low with a volatile rand exchange rate bring uncertainty to any investment plans. Electricity charges had to have a more gradual cost increase trajectory, he said, or there was serious trouble ahead.

Worse, municipal charges had no relation to Eskom charges and this had to be attended to, Strong added.

His statements came in hearings on the department of trade’s (DTI) industrial policy action plan (IPAP) and Strong added his voice to that of MPs that the National Energy Regulator of South Africa (NERSA) should interrogate Eskom price increases more harshly; that municipal mark-ups should be investigated and that electricity discounts had to be considered if manufacturers were to survive.

On the first day, much of the debate surrounding the progress report by DTI on IPAP progress to date. The debate  surrounded not only the usual discourse on tariffs, government departmental policy on preferential procurement (PPPFA) but on re-orientating South African exports away from traditional markets to high growth countries.

A noticeable shift to open discussion on South Africa’s port and harbour problems was very much discernible, other than the expected focus on electricity charges.

DTI’s acting deputy DDG for industrial development, Garth Strachan, told parliamentarians that the need to maintain lower port handling fees was at the moment much countered by high financing costs of port infrastructure development, particularly in the area of rail. Transnet could not disassociate its charges from the urgent need to re-equip in areas of dockside upgrading and rail facilities.

He admitted that South African port charges were amongst the highest in the world, well above global norms particularly on manufactured goods but nevertheless port pricing on iron ore and coal was below the global average. Transnet was deeply involved in increasing flow with new rolling stock which fact was welcomed by opposition members

DTI in their presentation pointed specifically to the renewable energy independent power producer procurement (REIPPP) programme where two rounds of renewable energy generation bids had been awarded with minimum levels of local content ranging from 25% to 45%.

“Green industry achievements included the IDC approval of funding of solar water heater manufacturing and the launch of the energy efficiency programme, DTI said.

Clothing, textiles, leather and footwear, canned vegetables, set top boxes and pharmaceutical products had been the subject of PPPFA revision, it was noted, and new designations for school and office furniture and cables and other capital equipment was in the pipeline. Strachan said the industrial participation programme (NIPP) was just about to be re-formulated which would “help the shift to direct offsets in key IPAP sectors” now that the NIPP policy review had been completed.

On financing, Strachan said IDC was also going to lower the cost of funding for businesses, by sourcing an additional R2 billion from the UIF for funding more labour intensive businesses and so far, IDC had claimed that jobs created or saved through funding approvals from 2009 to this year was well over 111,000.

Looking ahead with the protracted recession and slow demand for South Africa’s exports, the challenge was the exchange rate overvaluation and volatility with high relative real interest rates. Strachan said that the “user pay” principle for funding electricity build programmes was inducing massive economic shocks to the manufacturing sector.

There was also the challenge of pricing by monopolies in primary industry and supply of intermediate inputs into manufacturing. In response to questioning on breaking this control up, Strachan responded by stating that the role of large companies in manufacturing in terms of demand and supply in a relatively small to medium economy was significant and that small enterprises in most cases benefitted from the value chain.

This was bearing in mind that the capital costs of such projects were so huge that it was an unlikely small and medium businesses would proliferate under these conditions.

Over the following two days, hearings on the IPAP were conducted and interesting comment was received from the Manufacturing Circle, made up of a number of South Africa’s major medium to large manufacturing companies from a wide range of industries, some of them exporters.

Bruce Strong, CEO of Manufacturing Circle told parliamentarians that for a sector that employed some 1.7m people and accounted for 15% of GDP it was not good that the sector was stagnant and had lost 300 000 jobs because of the recession.

Municipal electricity charges did not reflect the Eskom’s price increases and it was required that NERSA had to be more aggressive on Eskom price increases. Control was required on municipal electricity price increases in particular. Generally he said, the resources of independent regulators had to be upgraded and a benchmarking analysis of their abilities looked at.

Strong called for a national “fiscal review” on the funding of public infrastructure projects. His circle of companies had responded to various of DTI’s incentive programmes but no successful application by manufacturers to the jobs fund had been reported.

There was a crisis in manufacturing, Strong said.

The Competition Commission in their submission, added IPAP did not seem to support the establishment of a sufficient number of small and medium businesses and the problem as they saw it was that “large firms or monopolies ‘owned’ their customers and spawned low levels of investment as there was no need to invest because there was no rivalry.  MPs added the point that legislated monopolies seemed to be shutting down the economy.

DTI responded  that indeed the “ bunched up” escalation in electricity price increases was hurting the manufacturing sector. But the emphasis on the supply side and Eskom’s build programme that had led to the original Multi Year Price Determinations of a 27% increase, with municipal customers being subjected to tariff loading had led to triple digit non-tariff surcharges.

Some municipalities appeared to be using electricity tariffs to generate revenue, Strachan said and Strong noted that places in Mpumalanga that were served by Eskom had electricity 20% cheaper than those served by the majors. MPs added the point that in some cases, for example Johannesburg and Tshwane, a charge of 700% above Eskom’s prices was made.

DTI recommended that an intra-governmental task team examine the impact of escalating electricity tariff increases; short term measures be applied to vulnerable sectors; there was a need for one national set of tariffs; there should be single digit price increases; carbon taxes be approached with caution in the current climate; and companies be supported in recapitalising with energy efficient technologies.

MPs commented at this stage that it appeared that radical responses were needed to be done or IPAP would become a welfare system for failed businesses and pointed again to “ridiculous” electricity surcharges imposed by some by municipalities. Such a discourse by DTI was needed.

DTI’s main platform however on the issue of a deteriorating situation was the economic situation resulting from the global recession, rather pointing to the fact that although government automotive investment programmes had been successful, the production of cars had been seriously affected by the international failing markets. Exports to the European Union remained negatively affected and there had been an increase in vehicle imports at the same time.

Strachan said that 80% of the bodies of medium and heavy commercial vehicles now have to be assembled in South Africa, with the drive train and engines to be shortly included.   DTI was extending investment support for the assembly of semi knocked down vehicles, he said, and was working with IDC on finance programmes trucks and buses but the market was, nevertheless, small.

The department said the clothing and textiles sector accounted for 120 000 jobs and 11% of manufacturing employment. The sector had a turnover of R35bn which was 2.8% of GDP and there were 2 000 active companies in the sector. While the production in clothing had declined, there had been an increase in the production of footwear.

DTI pointed to the fact that many of the MPs questions and answers in the business hearings were outside of DTI”s function or core business but it could see the danger it posed and recalled that there had been the stalled REDs initiative to secure efficient distribution of electricity.

Looking ahead, Strachan said shale gas whilst not in DTI’s sphere, it seemed quite obvious that the east and west coasts of Africa contained enormous opportunities for the oil and gas industries and also South Africa had a competitive advantage because of its mining history. South Africa should focus on localization and the lifting of constraints at ports accordingly, it was noted.

Strachan noted that there was an opportunity for Saldanha to be an oil and gas hub but progress had been slow. If shale gas became a reality it would double the potential of Saldanha.

Posted in Electricity, Energy, Finance, economic, Mining, beneficiation, Trade & Industry, Transport0 Comments

Eskom sheds light on future intentions

annual report 2011/12

Eskom, whilst it may have some problems, is in a very healthy position and has electrified more than 155,000 homes this year.  It has, as promised, “kept the lights on” in South Africa but would fail in its New Build programme unless it had the backing of government financial support.

This was stated to the public enterprises portfolio committee in Parliament by CEO Brian Dames when presenting to Parliament the Eskom 2011/2 annual report figures in a presentation to back up the published annual report and financial statements.

He said that any funding issues had been resolved, particularly as far as funding for future projects was concerned, as had labour problems at Medupi power station building site.

Dames said that although sales had increased only by a marginal 0,2%, the increase in tariff allowed had resulted in revenue growing from R91.4bn in 2010-11 to R114.7bn in 2011-12.        Since March, there had actually been a decline in sales, reflecting the impact which the world recession was having on the South African economy.

Profit amounted to R13.248bn, giving a 3,7% return on average total assets, mainly as a result of NERSA having approved a 16% increase, providing therefore an economic benefit of R11bn this year to the country’s coffers.

Paul O’Flaherty, financial director, compared the final results to NERSA’s targets for 2011/12.   NERSA had estimated a higher operating profit than eventually emerged. The lesser figure came about because of a reduction in sales due to a depressed economy but with cost savings of over R4bn, a net profit figure of R13.25bn was finally reflected in the figures which exceeded NERSA’s expectations.

O’Flaherty, however, gave some warning signals for the coming year as far as the consumer was concerned, bearing in mind that the utility had originally applied to NERSA for a 29% hike in tariffs in order to fund its power generating programme over what was then a shorter period.

He told committee members that as coal were such a large proportion of Eskom’s costs and with coal prices being unpredictable, inputs at their coal fired power generating stations could easily rise above the rate of inflation and in such as case the consumer would have to bear the brunt.

As things stood, coal costs had gone up by 29% during the year. He also said that Eskom had finally negotiated an increase of 8,1% for the workforce and this would add to input costs throughout the group.

Brian Dames said that a major issue in the coming year was to convert coal deliveries from road to rail as far as this was possible and Eskom had set a target last year earlier to move 8,2m tons by rail. So far, Eskom was looking at a figure of 8,5m tons having been achieved. This was encouraging, he said.

Dames told parliamentarians that the special tariffs enjoyed by BHP Billiton for their aluminium-smelter, originally set when Eskom had excess capacity were currently under negotiation.      Eskom had also recently been able to renegotiate more favourable contracts with zinc plants in Namibia who had until now enjoyed tariffs below cost of production.

He warned that as tariffs inevitably increased, such would be translated into debt problems, particularly at municipal level. Already it was a challenge was to manage the Soweto debt, which stood about R4.5bn at the end of the last financial year.

Dames said that NERSA had agreed, as part of recent talks, that Eskom would be allowed price increases in the future and would also be allowed to revalue its assets to allow for a higher level of depreciation. The cost of replacing Eskom’s assets today would be R500bn, compared to the historical cost of R290bn but as its debt grew, so would its financing costs.

Eskom’s rating with government support was “BBB+” and without government backing its rating would be lower. This was not a possible scenario, he said, for the country or Eskom.

Eskom’s build programme would continue as planned, the committee was told, which would deliver an additional 11 256MW by the time the Kusile coal fired power station came on stream in 2019. What would happen after that, Dames said, depended entirely on the integrated resource plan (IRP) being drawn up by the department of energy (DOE) in discussion with stakeholders.

Both DOE and Eskom are locked into investigative debate on the financial prospects for Eskom should it be stripped of the national transmission grid in order that independent power producers may enter the energy supply chain, all regulated by the presently halted ISMO Bill. Such matters directly affect the IRP and all future consequences in energy planning.

Posted in Electricity, Energy, Finance, economic, Land,Agriculture, Public utilities, Trade & Industry0 Comments

Hearings completed, debate starts on new ISMO Bill

With hearings over 4 days, the portfolio committee  of energy under Sisa Njikelana heard submissions on the Independent System and Market Operator (ISMO) Bill, legislation that brings to South Africa for the first time a regulatory system for the trading of electricity at a wholesale level and for integration of privately produced power into the national grid.

In addition, the department of energy has reported back to Parliament with its views on these submissions. This will be summated on this website shortly, after circulation of ParlyReport to private clients.

Department of Energy (DOE),  in their own submission during the hearings said that South Africa urgently needed new generation capacity but there had to be “rules of engagement and a level playing field” if the private sector was to be introduced. Consequently government had to ensure that the public still had the benefit of “minimalisation of inevitable tariff increases”.

The purpose of the ISMO Bill was to establish a centralised electricity buying department to separate such a process from Eskom who controlled 90% of the electricity output in SA, thus providing a form of independence from Eskom for independent power producers, DOE said in their introduction.

ISMO would be responsible for an “aggregated wholesale price”, leaving generation licences and allocation of megawatts supplied in terms of the integrated resources plan to be addressed under the Electricity Regulation Act.

In general, all submissions welcomed the introduction of such a Bill, the Energy Intensive User Group expressing concern in their comments as to who exactly was the ultimate owner of the national grid system and the fact that municipalities were included as distributors under ISMO jurisdiction.   The Bill was silent on ISMO rights, they noted, and how potential customers would be shared between Eskom and ISMO and is was important in their view that the Electricity Regulation Act be amended to reflect this since the new ISMO legislation would be rendered inoperable in many respects.

NERSA, the electricity regulator, had a number of critical comments to make, Richard Chauke of that organisation stating that “despatch”, or passing on of power generated is not provided for in the Bill as a licenced activity in terms of the Electricity Regulation Act (ERA), meaning that NERSA would have to commence trading activities on a temporary basis which was not a good plan.

Also, they stated, Eskom’s licence as an operator needed to be amended and separated to allow for independent power producers (IPPs).

NERSA responded to queries as to why the ERA had to be changed, stating in their reply that the ERA was the anchor legislation for the entire process and that matters should follow such a regime where major subjects such as this dealt should be dealt with in an over-arching industry act, particularly not the ISMO which was relevant to IPP supply.

NERSA again emphasised that as it was important in order to ensure equitable and fair despatch of IPP power; that considerable expertise within NERSA would have to be built up in NERSA in the coming months to ensure transparency and this might be achieved by hiring suitably qualified additional staff.

Posted in Electricity, Energy, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry0 Comments

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