Tariff hike of only 1% increases SA mining costs by R100 million a year

10 May 2013 | ESI Africa

It therefore really hurts that since 1st of April 2013, large power consumers across South Africa have had to fork out an average monthly 9.6% tariff increase. Although some industry insiders have warned that the tariff increase could lead to 250,000 job losses, Dick Kruger, techno-economic adviser to the South African Chamber of Mines, is more optimistic. “Although 9.6% is high, we are nonetheless thankful that it is less than the 16% that Eskom eventually applied for. This increase will definitely not go unnoticed in an industry which has seen prices doubling over the last three years. However, at this stage we do not foresee any job losses or mine closures directly as a result of the increase. We have known since August 2012 that increases were on the way and mines could figure this into their short and medium plans.”

This means that mining companies had to seriously look at their operations and make adjustments such as the introduction of variable speed drive motors that have been known to cut energy use. Says Dick Kruger, “Some mines have already looked at replacing electric motors with variable speed drive motors and replacing compressed air drills with extremely expensive electric rock drills.”

According to Kruger, gold mines will be hit hardest. “About 60% of the total cost of the electricity consumption at gold mines goes towards creating an environment that one can work in. Large amounts of money are spent on ventilation, pumping and refrigeration. Only 40% of the expense goes towards production purposes.”

Some pockets of the South African economy are still trying to recover from the devastating effects of the first few months of 2008 when power cuts were a daily occurrence. This coincided with the global economic crash and thousands of jobs were lost across all economic sectors.

At the time Eskom gave an undertaking to large power users that it would do everything possible to avoid power cuts to big business. “Eskom has made good on this undertaking. But there are other problems. In March (2013) the mines in Carletonville stood still for three days when transformers burned down and miners could not be sent underground. It also happens frequently that the power supply is not running on full strength which leads to work grinding to a halt. Although the mines do not generate income during these situations, the expenses do not decrease. Workers still need to be paid and the mines have to foot the bill for the ordinary daily running costs,” Kruger says.

“The mining industry has signed the Voluntary Energy Efficiency Accord committing itself to pursue a reduction in power use of 15% by 2015. Mines have already saved a lot of energy, but savings can only be done up to a certain point before production is compromised.”

In a brief response about how Anglo American is dealing with unstable power supply and tariff hikes, the mining giant’s spokesperson Hulisani Rasivhaga said, “Anglo American is monitoring many aspects of Eskom’s performance on a regular basis and is aware of Eskom’s limitations. Anglo American and all its business units, is supporting Eskom by shedding load as and when required and as mutually agreed.”

The South African Chamber of Mines’ Dick Kruger emphasises the need for more power generating plants. “When the new Medupi power station in Limpopo and the Kusile station in Mpumalanga have been completed, we will be able to breathe again. At least for a while.”

SOURCE: http://www.esi-africa.com/Tariff/hike/only/1percent/increases/SA/mining/costs/by/R100/million/year

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