Mines minister heralds a new era of investment

If Gwede Mantashe, South Africa’s Minister of Minerals and Energy, has his way, digging to build a new power producer to challenge Eskom would begin next week, or sooner rather than later.

“Eskom is in trouble. By 2024 it will start decommissioning some of its power stations. So we need to take the initiative to generate power outside of Eskom,” the minister told delegates at the Investing in Africa Mining Indaba.

The company, which has been agreed to “in principle”, will be funded by “investors” and will be a partnership involving the state and the private sector. The energy will be generated by all fuel sources other than dirty coal, in other words renewables, clean coal and, ideally, gas.

Mantashe expressed concern about the damage that the shortage of power is doing to South Africa’s economy.

“Global growth is projected to rise from an estimated 2.9% in 2019, to 3.3% in 2020 and 3.4% in 2021. South Africa’s economic prospects for 2020 will be just under 1%,” he told delegates at the opening of the Indaba. “Structural constraints and the recent power outages are contributing to this outlook.”

He added that South Africa’s mining production decreased by 3.1% year on year in November 2019, constrained by electricity shortages.

 

“This reality forced us to take serious decisions.”

In addition to accelerating the development of an alternative energy producer, Mantashe announced the removal of restrictions on self-generation and acceded to mines’ requests to build their own power generation facilities. “We have agreed that because of the problems of energy we must allow mining companies to generate energy for self-use,” he said.

At present, private individuals and companies are allowed to generate up to 1MW of power without a licence.

“Self-generation will be part of our make-up of energy supply to take the pressure off Eskom. Self-generation for own use will be allowed – if you want to generate 300MW you will be allowed to.”

However, this is for self-use only. Any plans to sell the power will be construed as business, which still requires licensing, Mantashe added. 

Speaking on the sidelines of the Indaba, Sibanye CEO Neal Froneman welcomed the move.

“Under the previous minister, companies like ourselves were able to apply to self-generate but between Eskom and the DME the put so many hurdles in place it was effectively impossible – why do you think not one of these projects has got off the ground? There has been a shift. The minister has created a working team to get past the impediments, which is positive.”

That said, Eskom will not buy any surplus power, which creates risks.

“Companies cannot make investment decisions that are not viable. We are not the Red Cross.”

While there may be many hurdles in the way, Mantashe expressed a desire to facilitate investment in the power industry. In fact he spoke about markets and competition in such glowing terms that some delegates wondered if it was the real Mantashe speaking.

“I think aliens had taken over his body. He looked like Mantashe, but didn’t speak like him,” said one delegate.

But Mantashe had the last word. “What we want is competition. We are hoping that competition will pull the price of electricity down. We have very expensive electricity – even from renewables. Competition must be real – that is the Dutch model and it is what we have in mind. You should be able to buy from anyone and send it through the transmission network to where you want it.”

On the energy front he also said the Saudi state oil company was planning to build a refinery at Richards Bay. BM