Power to the People
Cheap electricity has been one of South Africa’s selling points to potential investors. HE Yacoob Abba Omar, South Africa’s Ambassador to Oman, examines the crisis the country faces in ensuring continuous and cheap supply of power

South Africans usually bear their troubles with a large dose of humour. Notwithstanding the fact that South Africa does not have the death penalty on its statute, the following story has been making the rounds in response to the blackouts that people have been facing: Two men have been sentenced to the electric chair. They were worried how the whole thing would go but were reassured by their warder that it would be a relatively quick and painless experience. “One or two levers are pulled, a surge of current and you’re gone,” was his chirpy reply. On the appointed date, condemned man 1 is herded off to the electric chair. After a few minutes, convict Number Two hears screaming from the chamber. This goes on for a long while. Panic-stricken, he asks the warder why did he lie to them that the exit would quick and painless. The warder responds: “Blame it on electricity cuts.We have now switched to candle-power!”

Our citizens have long been used to relatively cheap and reliable supplies of electricity. This has been one of the competitive advantages of our economy, attracting huge energy-dependent projects such as a second aluminium smelter. However, the many complaints about power outages reached a crisis point on January 24 this year when major companies in the mining industry announced that they were having to suspend production because of unreliable power supplies.

Proactive government
The South African Government has been very frank in apologising to the nation about the state of affairs. President Thabo Mbeki, in his annual State of the Nation Address (SoNA), on February 8 at the opening of the 2008 parliamentary session, said: ‘We take this opportunity to convey to the country the apologies of both the Government and Eskom for the national emergency, which has resulted in all of us having to contend with the consequences of load-shedding. I would also like to thank all citizens for their resilience and forbearance in the face of the current difficulties.”

He set out the core of the problem as follows: “In essence, the significant rise in electricity demand over the last two years has outstripped the new capacity we have brought on stream. The resultant tight supply situation makes the overall system vulnerable to any incident affecting the availability of energy. In this situation, we have to curtail unplanned outages and the only way we can do this immediately is to reduce demand and thus ensure a better reserve margin”. The South African government, not usually given to hyperbole or rhetoric, has declared the situation as a national emergency. The government has immediately started implementing a campaign to ensure efficient lighting, solar water heating and geyser load management in households, including housing standards for all new houses and developments.

An instruction had been issued for all government buildings to reduce their electricity consumption and “Please feel free to name and shame those who do not,” said Mbeki. Various ministers have been tasked with coming up with a power conservation programme. Provincial governments are working with mayors to plan and implement energy saving measures in all municipalities across the country. They are being supported by technical teams from EDI Holdings, Eskom and the National Energy Efficiency Agency.

Energy Champions
Furthermore, the President will soon be announcing a team of energy champions consisting of prominent and knowledgeable South Africans who will assist the government in its energy efficiency campaign and inform investors and communities on the actual situation and how they can help to address the challenges.

Mbeki captured the approach of the government when he said, “We are indeed in a period of challenges, but surmountable challenges. And precisely because it is a period of challenges, it is also an era of opportunity!... Let us therefore use this emergency to put in place the first building blocks of the essential energy efficient future we dare not avoid.” On the supply side, Eskom is working furiously to ensure the introduction of co-generation projects. Eskom’s maintenance capacity is being upgraded and emergency task teams are dealing with the challenge of coal quality and supply with the coal mining industry. It is estimated that the local coal industry will be spending an additional US$3 billion to meet the increased demand of 45 million tonnes. While this is expected to have an inflationary effect, as seen in the rise in coal prices worldwide, experts expect this to create more jobs and increase mining revenues. Also, the government is working to fast track the approval and construction of gas turbine projects.

In his Budget Speech Finance Minister Trevor Manuel announced that the government had allocated an additional US$10 billion to Eskom for a massive programme to address new generation, transmission and distribution capacity. This will be part of the US$50 billion, which the power utility will be receiving over the next five years. Both Moody’s and S&P welcomed the moves, with Moody’s saying they planned to hold Eskom’s BCA at 8. BCA ranges from 1, which represents least credit risk, to 21, indicating an extraordinary bailout.

Forging partnerships
The private sector has responded very well to these moves. For example, General Electric (GE) offered to assist by procuring scarce turbine equipment on behalf of the government. Large companies such as Sasol, Anglo and BHP Billiton are all in concrete discussions with government departments to find cost-effective and sustainable solutions to the supply constraint. Said the Chief Executive of Anglo American Cynthia Carroll, when addressing the Mining Indaba on February 5: “I don’t regard the problems of energy supply here as a disaster. And South Africa is not alone: there are pressures on supply regarding our expansion projects in Chile and Brazil.

“Sure, the problems here are serious; overcoming them will require ingenuity, specially in energy efficiency and energy saving, as well as the development of alternative power supplies. But if all of us can forge strong partnerships, we will all come through – I hope relatively unscathed…This is not a time for finger pointing, but for working together in finding solutions.”

One of the factors contributing to Eskom’s problems, analysts have pointed out, is that the South African government has refused to pass on the increase in costs to the consumers. Mbeki may be preparing the country for a change in policy, when he said, “This situation has precipitated the inevitable realisation that the era of very cheap and abundant electricity has come to an end. However, given our large base of installed generation capacity, for a long time to come, ours will remain amongst the few economies with affordable electricity.