Financial Mail - Investors Monthly
Power to the people
Carbon tax legislation will be refined this year for readiness by next year’s budget, despite industry protests about an additional tax burden and that SA’s reliance on coal for energy makes carbon taxes impractical
Government expects to be able to provide clarity on the alignment of the carbon tax and carbon budget by the end of this year, according to national treasury.
A carbon tax has been under discussion for several years to help SA to meet its commitments to combat climate change, but it is deeply unpopular with the business sector. Energyintensive businesses say it will increase their costs at a time when the economy is under pressure.
Hogan Lovells SA head of mining Warren Beech says the carbon tax is inevitable because it is one of SA’s international commitments.
It is likely to be ready for the 2017/2018 budget.
But SA Institute of Race Relations chief economist Ian Cruickshanks is sceptical . He says that as a developing country dependent on its cheap and abundant sources of coal, SA cannot afford to tax a key source of its energy mix.
Treasury says a revised Carbon Tax Bill will be published for public consultation and tabled in parliament by the middle of this year. It will not have any effect on the price of electricity (which is mainly generated from coal) in its first phase, to 2020. The regulation for carbon offsets which allows firms to reduce their carbon tax liability has been revised.
Finance minister Pravin Gordhan said that continuing the independent power producer programme, both in renewables and gas, was one of the imperatives to boost investment in the short term. But he provided no further detail on the stand-off between the energy department and Eskom over Eskom’s reluctance to add more renewable power to the grid, which it claims is too expensive and not needed now.
Government has extended Eskom’s R350bn guarantee from March 31 this year to March 31 2023 to allow the utility to complete its current capex programme. At the end of December it had drawn down R187bn of this guarantee and it expects to have used R218.2bn by the end of next month. Eskom has increased its planned borrowings to R68.5bn from R46.8bn as it has revised its cost savings, and tariffs will be lower than anticipated. From 2017/2018, foreign loans will provide about 77.3% of Eskom’s total funding.
The priority for the energy department over the next three years will be to continue electrifying households, for which an additional R1bn has been granted. In this period 723,000 grid and 60,000 nongrid (solar power) connections are being targeted. It is becoming more expensive to electrify households as the programme moves into deep rural areas.
The solar water heater programme, which is designed to reduce demand pressure on the national grid and has recently been revised, will be accelerated in the next three years. Spending on this programme, which now has higher local content and small business development targets, will increase to R534.1m from R478m in 2016/2017 with 141,000 solar water heaters to be installed. The Central Energy Fund, which has a 2025 plan to restore its commercial viability, will be focusing in particular on PetroSA, which has been affected by declining revenues from its gas-to-liquids activities as its field off Mossel Bay is reaching the end of its life. PetroSA will reduce costs, explore new gasfields and ways to extend the lives of its current wells and work on convert- ing its current gas-to-liquid refinery into a condensate processing facility. The next phase will be to consider a gas-to-power project to divert tail gas to Eskom’s Gourikwa power station.
Meanwhile, the staff complement of the Central Energy Fund will be reduced to 1,886 from 2,074. A discussion paper outlining options to address acid mine drainage would be published for public comment by the middle of this year, Gordhan said. Beech says Gordhan’s reference to finalising legislation on mining development and land redistribution fits with the budget’s emphasis on transformation. Government is committed to a new mining charter, amendments to the mineral laws and growing the state mining company.