The Chamber of Mines on Thursday tore into Eskom’s application for a tariff increase, saying the utility was more interested in its credit rating than the interests of South Africa.
More than half of South Africa’s platinum mines are loss-making or marginal and 37% of gold mines are in a similar position. Over the past five years, electricity added R7-billion to their costs.
The mining industry would be pushed over the tipping point if Eskom’s application to the National Energy Regulator of SA (Nersa) for a 16% increase in electricity prices each year over the next five years was approved, the chamber said at a Nersa hearing in Midrand.
If Eskom was granted the hike, this would mean that between 2007 and 2018, electricity prices would have risen 589%, Roger Baxter, senior executive at the chamber, told the hearing.
He said Eskom was too focused on the return on capital, or profit, from its new power plants and it was not the price of coal that was the major driver behind its application. This was evident in the fact that two thirds of the proposed increase in electricity prices was attributable to return on capital and depreciation charges.
"This clearly shows Eskom is primarily focused on achieving a standalone investment grade rating at the expense of the competitiveness of South Africa’s electricity intensive tradable sectors," he said.
Political, regulatory and operational concerns saw several ratings agencies lower South Africa’s sovereign rating late last year and state-owned organisations, including Eskom were downgraded too.
"If power costs continue to rise, we would be in an ironic situation where all the major companies operating in South Africa are not investment grade and Eskom is," Chamber of Mines president Mark Cutifani said on Thursday.
"That would be an unbelievably crazy outcome. That’s why the government, Eskom and industry have to agree what a great South Africa looks like."
It appeared that Eskom needed the large return on capital to secure its investment-grade status, and the annual 16% increase over the next five years would deliver that, Mr Cutifani said.
"To get there in five years is crazy, because you’d sacrifice every one of the other major corporates in the country. I can’t understand why anyone would think that’s a good idea."
Article continues on page two: the increase will push SA into the world’s second-highest quartile of electricity prices...