South Africa's Electricity Prices At the Tipping Point We cannot afford to get it wrong!. Presenting to the DTI PPC 2 November 2012. AGENDA. Primary Sector leads Job & Economic Growth MYPD3 Prices will Slash Growth and Jobs Industrial, Commercial and Domestic Sectors Impacted The Solution
South Africa's Electricity PricesAt the Tipping Point We cannot afford to get it wrong!
Presenting to the DTI PPC
2 November 2012
Producing Products for Retail
Producing Products for Manufacturing
The delicate balance in transformation!Job retention/creation in primary, secondary and tertiary sectors
New Job Creation
SA cannot leapfrog the value nodes without a surplus of skilled labour!
China, India, Russia etc are progressively taking jobs from South Africa by importing South African ore in raw form and investing in these higher value adding steps!
South Africa then has to import the value add good from China.
South Africa is selling its birthrights!
Plus Tertiary Value Chain Jobs
Plus Secondary Value Chain Jobs
Primary Value Chain Jobs
Growth driven by credit fuelled Non-tradable Sectors
Tradable export sectors have languished…..
Low Job Creating
High Job Creating
Non-tradable sector – Sucking-in imports and creating external imbalances, such as running large current account deficits…..
130 Rc/kWh (by 2022)
Eskom's MYPD3 Application
Eskom's MYPD3 Application (Scenario 1)
Sources: IRP2010, Eskom, Frost & Sullivan, EIUG
Mining & Industrial
Source: Eskom and The U.S. Energy Information Administration (EIA)
2022 South Africa
MYPD3 Scenario 1
Source: EIUG Steel Industry Data
US mills per kWh
Source: CRU for comparison up to 2011, SA escalations going forward shown in real 2011 terms with CPI of 5% assumed
SA Ferrochrome market share is being displaced to China
World Chrome Ore resources by region
Breakdown of market share for FeCr production
SA Mining and Industry being Priced out of Jobs
Cost of doing business in SA has grown at an alarming rate
SA FeCr industry cost growth
Source: CRU, Xstrata Analysis, Company annual reports
Source: Genesis Analytics
Mining Alone – An Essential Core Of SA Economy
IPP’s and Competition will Ensure Efficiencies Return
< 75 c/kWh
Source: Black & Veatch
% Return on Assets (ROA)
Cost of Sales
Source: Frost & Sullivan
>24% of the
Industrial Tariff is Subsidy Contribution
It could be >30%
Sources: BDO, select municipalities
The true reflection of what is actually being charged is however often understated due to non-standard charges. NERSA regulates categories consisting of an energy charge, a demand charge and a fixed charge. Surcharges and levies fall outside the mandate of NERSA and Nersa is thus not in a position to regulate additional levies or surcharges that municipalities impose. Municipalities appear to be able to apply such non-standard charges at their discretion with little or no regulation.
Sources: BDO, select municipalities
A recent BDO analysis of the purchase costs from both Eskom and the municipalities making up the study found that there is a heavy bias in the costs for the demand charge component of electricity. The tariffs bear the imprint of historical investment decisions at the point of their inception. The question must be asked why such inflated charges are still being charged against equipment that should be fully depreciated.
Cut Inefficient Costs – Do Not Simply Increase Prices
Refine funding Model – Regulatory Methodology needs to be reassessed
Remove Excessive Funding Safety Margins
Increase Sales – This reduces Prices
We do not need Subsidies – Just Remove the non Cost Reflective charges