Expect a lot of hot air from Cape Town this week
Cape Town plays host to the masters of explaterate at the Mining Indaba and state of the nation address this week.
President Cyril Ramaphosa and his mineral resources & energy minister will be at pains to place recent wins over the creaking façade of this administration’s final year, but the wreckage is too large to paper over with such platitudes.
Let’s take a closer look at mining and energy. At long last we have the award of a preferred supplier to modernise the department’s dysfunctional cadastre system.
While this is a positive step after years of missed deadlines, we should not get carried away. The consortium is a preferred bidder, so a contract must still be concluded and signed before the real work begins.
That’s no easy task. The original data migration into the SA Mineral Resources Administration System (Samrad) in 2011 was cocked up, which is partly why the existing cadastral system was such a disaster. Also, not all of the data that is required is in Samrad; much of it is paper based. That data needs to be checked and cleaned up, disputes resolved and everything migrated into the newly configured system.
The Minerals Council SA estimates a backlog of more than 3,000 prospecting and mining rights with a potential investment value of more than R30bn. I doubt we will see any benefit in 2024. There is little sign that the administrative issues are being resolved, despite the minister’s claims that hundreds of applications have been processed for mining permits and other things in response to concerns about his department’s capacity shortage.
There is minimal progress, but also no discernible co-ordination between the presidency and the departments of mineral resources & energy and trade, industry & competition, something that needs to be addressed urgently.
In the energy portfolio, reform progress is much more tangible and encouraging. Growthpoint, the country’s largest property company, signed a milestone power purchase agreement with energy trader Etana Energy last week to wheel electricity to its commercial property buildings across the country. The news is not getting the attention it deserves.
As a result of the agreement with Etana, Growthpoint has exclusive rights to purchase all of the roughly 30GWh that will be generated annually by a 5MW hydroelectric power plant developed, owned and operated by Serengeti Energy. The project is situated on the Ash River within the Lesotho Highlands Water Scheme, so the deal provides the added benefit of generating 24/7 baseload power.
Talking to Growthpoint SA CEO Estienne de Klerk on my show last week, he said he believes the lessons learnt in establishing SA’s first multijurisdiction, multi-building, multi-source renewable energy wheeling arrangement will open the door for other big businesses to follow suit.
This is bad news for Eskom as large customers will jump at the opportunity to sign similar power purchase agreements if they can be guaranteed cost competitive, reliable power supply increasing in low single digits for anywhere from five to 20 years. But it’s great news for the SA economy.
The energy department must be commended for promulgating the legislation enabling a proliferation of new electricity traders to enter the SA market, and also for allowing for flexible energy solutions for the mining industry.
However, the limited capacity of the existing transmission grid and the absence of unified municipal laws and regulations for moving power through municipal distribution systems continue to be obstacles.
The department has announced that it aims to secure private sector investment in our transmission and distribution grid, and it is critical that this is given top priority. To increase grid capacity in the areas of SA with the greatest grid constraints, the department must also move quickly to finalise and put into effect clear regulations on grid allocation and electrical generation curtailment.
FREIGHT DEMAND
When it comes to rail, reform continues to move at the speed of a home affairs queue. According to data from the SA Association of Freight Forwarders, domestic freight demand is high, at nearly 500-billion tonne kilometres. We require a multimodal strategy to meet our freight requirements.
At its worst we lost R200m a day due to port inefficiencies, while we lost R1bn due to rail inefficiencies.
These numbers are staggering. But by all accounts the introduction of the national logistics crisis committee last year is starting to bear fruit. Road Freight Association CEO Gavin Kelly believes the recovery plan deployed by Transnet at Pier 2, the country’s biggest container terminal, will remove the backlog by the end of this month, as was anticipated in the original plan. Third-party access and the goals of the new rail strategy remain elusive.
In the final reckoning, while reforms gather momentum, the ultimate strategy of opening space in the economy for the private sector continues to be a mirage.