Pretoria, South Africa — 28 February 2013 – The mining industry will be a major victim of the announcement that South African power utility Eskom Holdings SOC Limited “’ the supplier of 95 percent of the country’s electricity “’ is being allowed to raise fees by an average 8% in each of the next five years.
“Power prices will climb to 65.51 cents ($0.07) per kilowatt hour from April and to 89.13 cents by 2018,” Cecilia Khuzwayo, chairwoman of the National Energy Regulator of South Africa (NERSA), said in a speech here reported by Bloomberg News. The increase was below the average 16% advance sought by state-owned, Johannesburg- based Eskom for each year through to March 2018.
“It will certainly present challenges,” Eskom spokeswoman Hilary Joffe said by phone. “We need to study the details.”
South Africans were hit by average power-price increases of 25% in each of the past six years to help Eskom finance about R500 billion of spending through 2017 to overcome an electricity shortage. Factories and mines of companies such as mining giant Anglo American plc were temporarily halted in 2008 because of the deficit.
Above-inflation advances in tariffs have contributed to lower profit for mining, as well as agriculture and steel-producing operations in Africa’s biggest economy.
“This is good news from an inflationary perspective,” Johann Els, an economist at Old Mutual Investment Group, South Africa’s largest private money-manager, said in a phone interview from Cape Town. “It lowers the inflation profile for the second half of the year. Every bit of lower price increases helps.” Els estimates price growth will peak at 6% in July compared with 6.3 percent before the tariff announcement.
“We’re satisfied with the ruling,” said Shaun Nel, a director at the Energy Intensive User Group of Southern Africa, whose 32 members include the local units of BHP Billiton Limited and ArcelorMittal. “For our members, the rising electricity prices have been a significant contributor to economic slowdown and job losses.”
Eskom has R195 billion of debt and interest outstanding, according to data compiled by Bloomberg. “What is key is Eskom must be given an opportunity to respond and to indicate how they think they are going to make that an affordable proposition and keep themselves viable,” finance minister Pravin Gordhan told reporters in Cape Town. “Clearly from a business and household point of view a single-digit increase is welcome.”
Source: Bloomberg News. For more information, click here.