Widespread blackouts across South Africa have raised questions about the economic impact of the country’s overloaded national grid.
South Africa’s mining sector was the hardest hit by power cuts starting in late January, which prompted safety concerns about sending staff down mines up to four kilometres deep without guaranteed electricity.
South Africa is the world’s biggest gold and platinum producer and the mining sector accounts for one-third of the country’s foreign exchange earnings. Temporary mine closures have the potential to cripple the nation’s economy, say some experts, through loss of production and damage to potential investment.
Global mining company BHP Billiton says it will not pursue plans to expand two aluminum smelters until it is confident of a reliable electricity supply. The coal situation in South Africa is in crisis, says BHP Billiton Ferrous and Coal chief executive Marcus Randolph.
“The approach that we have taken – and we have passed this to the government – is that we will do everything we can to help, including the option of diverting coal,” he says.
South Africa’s state electricity company Eskom is expected to announce a $22bn five-year capital expansion programme to fund a new generation of power stations. But the new power infrastructure will not be in operation until 2013, leaving an interim period of vulnerability to power outages for large businesses operating in the region.
Manufacturing, agriculture, commerce and the service industry have also been affected, and Eskom has had to cut electricity to customers in neighbouring countries, causing outages across southern Africa.
A white paper 10 years ago warned of South Africa’s growing economy requiring more electricity by 2007 but the government delayed building more plants, while debating whether to privatise part of the industry, a proposal it eventually rejected.
Officials underestimated the growth in demand for electricity as the economy has become the strongest in Sub-Saharan Africa with a 5% growth rate.
Eskom’s power reserve margins are about 4% against an international benchmark of 15%. The government’s short-term solution is rationing electricity supply and encouraging conservation of energy. JPMorgan estimates the loss of one week’s production for Anglo Platinum was $115m.