By Ron Derby
Jan. 15 (Bloomberg) -- Eskom Holdings Ltd., which has restricted power supplies to South African mines because of a shortage, expects no growth in the country’s power demand for the next two years as the global economic crisis curbs appetite for commodity exports.
In January last year South Africa’s power network nearly collapsed, closing most mines and metal smelters for five days. That resulted in rationing and caused the deferral of some projects, including an aluminum smelter planned by Rio Tinto Group.
“For the next two years we expect no growth in energy requirements,” Brian Dames, the head of state-owned Eskom’s power generation unit, said in an interview today at the Medupi power plant, which is being built near South Africa’s border with Botswana. “None of us really know what is happening” with the economic downturn.
The economic slowdown may ease pressure on Eskom to raise funding for a five-year, 353 billion rand ($35 billion expansion to ease an electricity shortage that’s curbing economic growth in Africa’s biggest economy. South Africa’s power demand rose by 4.3 percent in 2007, according to government figures.
“It’s become significantly more difficult” to raise finance, Dames said. “We have just seen equity and bond markets essentially closed for all companies.”
Talks to find alternatives are being held with the National Treasury and the World Bank, he said.
Delayed Permission
Eskom ran out of power last year because the economy had grown at a faster-than-expected rate and the government had delayed giving it permission to expand for four years, hoping to attract private investment, which didn’t materialize.
Xstrata Plc and other companies have now shuttered ferrochrome smelters, some of Eskom’s biggest customers, because of reduced demand globally for the stainless steel raw material. That could further slow growth from a decade-low annualized rate of 0.2 percent in the third quarter of last year.
“It’s a relief for Eskom, its not a relief for the country,” Iraj Abedian, the chief executive officer, of Johannesburg-based Pan-African Capital Holdings Ltd., whose services include economic research. “If we don’t invest now we won’t have the energy capacity” to grow in the future.
Eskom is forecasting that demand growth will resume at a rate of 2 percent to 3 percent a year after the next two years, Dames said.
Third Power Plant
Eskom is building two coal-fired power plants and will make a decision on whether to erect another within 18 months, Jacob Maroga, the company’s chief executive officer, said in a separate interview at Medupi. The company is also in talks with the government over how to expand its nuclear energy program after it canceled a 120 billion rand plan to build a second nuclear plant in December, saying it was too costly.
“Nuclear energy must play a role,” he said, adding that Eskom will seek partners to develop its nuclear program. Eskom currently operates one 1,800 megawatt nuclear power plant near Cape Town.
The company will make an application to South Africa’s energy regulator within two months to raise its tariffs, Dames said. Higher tariffs are needed to help the company pay for its expansion, the company has said.
While an application had been due late last year Eskom had to make adjustments because of the falling price of coal, which is used to generate about 90 percent of its power, he said, adding that the company expects to get better prices for its “short-term” coal-contracts, which account for about 20 percent of its needs. Eskom burns about 125 million tons of coal a year.
Elections
Coal exported from the port of Richards Bay in South Africa, which is mostly of a higher grade than that burned by Eskom, has fallen 53 percent from a record in July.
In June last year, Eskom was allowed to raise its prices by 27.5 percent, less than half the level it requested. That request prompted criticism from political parties and Congress of South African Trade Unions, South Africa’s biggest federation of labor unions, threatened to call a national strike.
South Africa is due to hold elections before mid-July.
To contact the reporter on this story: Ron Derby in Johannesburg at rderby1@bloomberg.net
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