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SA should learn from its Medupi fumblings to ensure long-term security of electricity supply

Ispent two days in Botswana last week, where there was much complaining about Eskom’s recent power cuts. Last Monday, Eskom announced that 11,5 GW of generating capacity (27% of its total capacity) was out of action because of planned maintenance or unplanned outages. With the advent of warmer weather, the utility has been ramping up planned maintenance. It has cut 5,7 GW for planned maintenance, up from the 3,2 GW in mid-2013. After running its plants at full tilt in the past few years, maintenance is vital. Breakdowns (5,8 GW in total last week) are inevitable.

As a result, Eskom published a potential load-shedding schedule on Wednesday. It was careful to note it didn’t expect to use it but, just in case, it wanted the public to be forewarned. Almost six years after the utility shut down the SA mining sector in January 2008, its communications have come a long way.

Big industrial users were asked to scale back their usage during the peak 5 pm-9 pm period in an orderly manner. Supply was cut to BHP Billiton’s much-maligned smelters. On Tuesday, Eskom asked Gold Fields, whose South Deep project will be SA’s largest gold mine, to reduce usage by 25%. Lonmin was asked to cut evening demand by 10%.

Mary Curtis, SA strategist at RMB Morgan Stanley, estimates that so far the impact on production has been minimal as it seems the mines have been able to cut consumption during peak hours by deferring hoisting and smelting until later in the evening. So the electricity shortage is not likely to result in a collapse in exports.

Unfortunately, winter 2014 will be tight as the first unit of Medupi will be completed only in the second half of 2014.

There is an important lesson in this: there are inevitably delays in large-scale infrastructure projects. By January 2015 Medupi will be three to five years late, depending on which starting date you use. SA needs to make decisions now for supply beyond Medupi and Kusile or we will face the same shortages in another decade.

Eskom has finally begun to support the development of smaller projects north of our border. Countries like Botswana have rich coal resources — and are prepared to provide government incentives like tax breaks to support their development. Building power stations that export power to countries like SA should be an obvious option. But this requires the SA government to make the decisions that allow Eskom to enter into longterm power purchase agreements to encourage the building of these projects.

The credit rating agencies responded to Eskom’s announcement by saying they did not see the electricity curtailments affecting SA’s credit rating unless they started to drag down the growth outlook. There is no doubt electricity constraints have lowered potential growth in SA, perhaps by up to 1%. But there shouldn’t be much impact on GDP growth in the coming months.

A few months ago, I was on a panel with finance minister Pravin Gordhan, who berated corporates for their poor perceptions of SA.

Electricity appears to be a case in point. Botswana is ranked 107th in “getting electricity” and SA is ranked 150th. SA has had no major load-shedding since 2008 while Botswana imports power from Eskom and has experienced sporadic power interruptions.

Money is often wasted when governments react in haste. SA should learn from its Medupi fumblings to ensure long-term security of electricity supply. The minister of mineral resources is promoting the exploration of our reserves of shale gas. Shale gas has dramatically lowered the US energy bill in recent years. Similar decisions need to be taken to allow Eskom to sign long-term offtake agreements with providers in neighbouring countries. Dithering will only delay projects — and depress perceptions of SA for a long time to come. Moola is an economist & strategist at

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