We have to see it as an adventure." My mother is referring to the two to four hours she is without electricity every day. The lights don’t even go out at a set time. "Sometimes it happens while I am cooking dinner," she tells me. "Good news for shops selling paraffin lamps. They are doing a roaring trade!"
For families and individuals being able to laugh at the impact of South Africa’s power crisis is one way of coping. But for big business finding humour in the situation is increasingly difficult.
Take Investec, one of South Africa’s specialist banking institutions - in December its local head office spent R350,000 (US$47,000) on diesel to drive generators. That is quite a hike in costs if you believe estimates that this office’s monthly electricity bill is usually no more than R75,000 (US$10,000). And that is just a bank with lights and computers! Can you imagine the potential cost impact to the mines which use a lot more electricity than a bank? After all, mining accounts for about 15% of South Africa’s electricity demand.
Business as usual?
The problem is that state electricity supplier Eskom, which provides 90% of South Africa’s, simply cannot meet the demands of a booming economy. And government failed to heed warnings by Eskom a few years back that massive investment was needed to meet the growing demands of business (a huge aluminium smelter is being built), and the majority of the population which previously lived in darkness.
"Yes it really is going pear-shaped here," a mining contact in Jo’burg tells me. "The last month has been dreadful. No power, terrible weather, markets in turmoil, China taking over South Africa as number one gold producer. Oh and then Simmers and Jack had a fatal accident at their Buffelsfrontein mine. That was another seismic event. But apart from this it is business as usual I guess."
But what does business as usual mean for the mines when there is limited power? "Well their gold reserves will last longer as they won’t be able to mine it," says my brother, somewhat facetiously. That may be true but with metal prices running this is the time the mines may actually want to get the metals out the ground.
That hasn’t been possible. For a whole week the mines power supply meant they could not work underground. In fact, for several days most mines only had 50% of their normal quota of electricity which for the deep mines is only sufficient to maintain the minimum activities required to prevent shafts from deteriorating.
And surprise, surprise, this is having a terrible impact on production and has costs the mining sector as much as R193m (US$26m) a day according to one local newspaper report. All the big mining groups, including Anglo Platinum, Impala Platinum, Northam Platinum, Lonmin, Gold Fields, Harmony Gold, De Beers and Merafe Resources, reported a halt to some or all activities. At the height of the crisis 6% was knocked off the gold mining index and the rand weakened by 2.4% against the dollar.
It is a disaster for economic growth, said an economist from Nedbank, which has revised its growth forecast for the year down to 3% from 4%. In 2006, South Africa experienced growth of over 5%.
Promises, promises, promises...but who is telling the truth
There are no quick solutions to the problem but business is now resigned to the fact that current supply cannot meet demand so they are now trying to do something about it. Eskom and industry are working together to try to reduce demand and every electricity user in the country has been told they need to cut consumption by 10%. There are going to be price hikes, periods of darkness, and compulsory load shedding and attempts to use more energy efficient products.
Some commentators are saying that the situation is now 90% resolved but let’s look at the reality. A task team was set up late in January with representatives from the Eskom, the mines, labour and government and it was agreed to restore 70% of the mine’s power. But frankly that was clearly not enough to do anything more that the minimum for essential maintenance and servicing, without which mines become unsafe and potentially inoperable. Given all the accidents in recent months, the mines are unsurprisingly very jittery about safety.
Now Eskom has gone further saying that most mines will be back to 90% soon but the cynics are not confident. And people are increasingly cynical! Furthermore, functioning at 80% or even 90% will still have an impact on supply and until the matter is fully resolved, the real effect of this remains an unknown.
People are affected too, both directly and indirectly. South Africa’s mining sector employs some 460,000 people and indirectly supports about 5-million, according to statistics from the Chamber of Mines.
Is the crisis worse than we think?
Gold Fields’ Ian Cockerill, a respected mining chief, has come out guns blazing on how the power crisis has affected his company. It is very, very serious, he says. "A 10% reduction in power actually eats into the 50% that's available for actual mining [50% of power is needed just for maintenance and servicing]. It's not a linear relationship; production does not fall by 10% when power usage is cut by 10%," he told a local newspaper. In fact Mr Cockerill reckons that operating with 90% could hit production by as much as 20% to 25% this quarter. Six of its 21 shafts will in all likelihood be closed.
Gold Fields has also decided to pass on declaring an interim dividend. Given that the company boosted net earnings by 50% in the six months to December, one has to wonder why. My brother reckons the power crisis is much worse than the government is letting on.
What is absolutely certain is that for some time yet power will be top of mind for South Africa’s mining chiefs, along with things like water rights, safety and empowerment.
Keep mining, but efficiently,
Erin and Isabel
