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

Financial Mail - Investors Monthly - - Budget 2017 - Char­lotte Mathews math­ewsc@fm.co.za

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.

So­lar geyser: Pro­gramme will be ac­cel­er­ated in the next three years

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