The Eskom power cuts scheduled to take effect over the next few days will have an adverse effect on production in the mining sector, according to industry insiders on Thursday afternoon.
Peter Major, mining consultant at Cadiz Corporate Solutions, says Eskom’s load shedding is paving the way for an increasingly difficult atmosphere between government and big mining houses that so critically rely on consistent, uninterrupted electricity for their survival.
Earlier on Thursday morning, Eskom declared an emergency and asked key industrial customers to reduce load by 10% as from 08:00.
“Eskom calls on consumers to urgently switch off geysers, pool pumps and all non-essential appliances this morning to prevent the need for rotational load shedding. The power system is very tight. This risk has increased significantly due to the heavy rains over the last few day and an increase in technical problems experienced at some of Eskom’s power stations,” the utility said in a statement.
SA’s coal, platinum and gold mines produced over $US360 billion of worth of product last year which amounts to R1 billion per day, according to Major.
These mines stand to lose millions of rands a day in lost production ‘just’ by trying to adhere to Eskom’s request of reducing electricity usage by 10%, he adds.
Although steps have been taken to ensure that production continues effectively at some of the mines around the country, the deepest underground mines will be most.
“This is what is so ironic,” says Major. “The largest employers in mining in SA, the deep underground mines who source nearly all their costs in SA take the brunt of this pain. Whereas the open pit mines that put people out of work via importing expensive international excavators and other ‘large, expensive’ machinery take far less of the brunt from Eskom’s load shedding. So it’s a double-loss for South Africa!”
Looking at the 10% that is required to be reduced, mines have to ensure there are no cuts in electricity to things like air conditioners, ice plants and air compressors, which would pose serious health risks if there were any interruptions when miners were still underground.
“If you cut air to the people underground, they will asphyxiate,” he says.
He adds that the problem with the power supply is that there are too many power plants down for maintenance and not running while new plants that were meant to be built 15 years ago have yet to be constructed.
Some of the key mining companies that are going to be affected include Sibanye Gold, Harmony Gold, Gold Fields – South Deep and Anglo Gold Ashanti.
Chris Yelland, energy expert and managing director of EE Publishing, says the cuts will see economic and political impacts.
He is of the view that the power utility had known for some time that load shedding would take effect, and that Eskom would have to bear the economic consequences.
However, he hinted that there could be political motives behind the request for industry to cut load by 10% as it would look bad if electricity was cut from people’s homes so close to election time.
He also explained that many industrials were energy-intensive and used electricity as a key input cost which would be detrimental to production if they couldn’t source an adequate amount.
“If it goes on for too long stock piles used to cushion the effects of load shedding will be empty so it depends on the nature of the business. If there is no power there will be serious problems for production,” he said,
Sven Lunsche, the manager of corporate affairs at Gold Fields said the company was asked to reduce usage by 20%.
“We have been able to comply with minimal impact on production,” he says.
James Wellsted, the executive head of corporate affairs at Sibanye Gold told Moneyweb that Eskom had changed its tune after demanding load to be reduced by 20%.
The power utility has since requested load to be cut by 10%. If it remained at 20%, there would have been some negative implications, says Wellsted.
However, the company had made contingency plans which were approved by Eskom and, given that load reduction was set at 10%, there would be no significant impact on production.
“We are complying,” he says.