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Energy crunch to put strain on SA economy

Staff Reporter

South Africa's energy needs -- specifically refined petroleum products and electricity -- were expected to put severe strain on the economy in the short to medium term and ultimately impact negatively on economic growth, Ernst & Young said on Monday.

South Africa’s energy needs—specifically refined petroleum products and electricity—were expected to put severe strain on the economy in the short to medium term and ultimately impact negatively on economic growth, Ernst & Young (E&Y) said on Monday.

Acknowledging that South Africa’s demand for electricity was unlikely to subside and additional capacity was required as an absolute priority, E&Y said the country’s energy crunch called for a dramatic change of behaviour, which could only be brought about by the introduction of legislation.

Norman Ndaba, oil and gas and utilities director at E&Y, said mitigation strategies to address the country’s energy crunch should involve being energy-efficient, but this was easier said than done.

“Being energy efficient suggests a 360° turn in behaviour,” said Ndaba in a note on the energy outlook for South Africa in 2008 and beyond.

“This dramatic change in behaviour can only be aided by enacting the relevant legislation. Without such legislation, market forces will prevail with unintended negative consequences,” he warned.

Ndaba said as South Africa faced an energy crunch due to the dire need for additional generation capacity in the country’s electricity sector, as well as a potential shortfall in refined petroleum products in the oil and gas sector, valid questions needed to be posed around the consequences of fossil and nuclear power sources.

He said such critical questions would have lasting implications for the economy and the country.

As a net importer of oil from crude, South Africa was subject to international demand and supply of crude tensions.

Ndaba says the country was therefore compelled to look to power sources that are both readily available and low in cost.

“To complicate the situation further, the South African economy is growing faster than anticipated, resulting in an unprecedented increase in the consumption of energy,” he said.

To demonstrate, he said the country’s consumption of petroleum products and the direct combustion of crude oil increased steadily over the last two decades.

Consumption levels have now reached a point where they exceed South Africa’s crude oil distillation capacity, resulting in a likely shortage of refined petroleum products in the country.

“The energy situation in South Africa will probably tighten further before the crunch starts to subside. In order to lessen the pain, integrated planning at a national level by all stakeholders is necessary.”

Problem to solve

Meanwhile, President Thabo Mbeki said the energy crisis had not arisen from positive factors.

“The electricity measures are borne out of positive developments in the country,” he said in an interview with the South African Broadcasting Corporation on Sunday.

Another example was that many roads, especially in the big cities, were not coping with the volume of traffic.

“It doesn’t signify a breakdown. It signifies that more people are buying cars,” he said.

“So, the problems around electricity arise not from negative factors, but they arise from positive factors.”

Asked whether the situation did not call for those responsible to be fired, Mbeki said he did not understand such thinking.

The issue was there was a problem to solve.

“In part, all of us, everybody, in this country, misread what was happening to this economy.”

People were more comfortable to be more pessimistic about growth and development, which resulted in wrong planning.

“So, we have to respond to the problem that we have. One individual sacked somewhere or the other is not going to give you electricity.”

“The thing to do is actually address the challenges that we face.”

Era of cheap electricity is at an end

In his State of the Nation address on Friday, Mbeki apologised to South Africans and thanked them for their “resilience and forbearing”.

Eskom, he said, is “working furiously” to ensure the introduction of co-generation projects. “We have emergency task teams dealing with ... coal quality and supply with the coal-mining industry and we are working to fast-track the approval and construction of gas turbine projects.”

The era of cheap electricity is at an end, he said. Despite this, and given the country’s large base of installed generation capacity, South Africa will remain one of the few economies with affordable electricity for a long time.

Mbeki quoted Anglo American chief executive Cynthia Carroll as saying that she did not regard the situation here as a disaster, and that there were similar pressures on the company’s projects in Chile and Brazil.

Mbeki outlined the reasons for the crisis and government’s response plan, saying the task now is to lead the campaign for energy efficiency. He called for the naming and shaming of those government buildings that do not reduce their electricity consumption. - Sapa, I-Net Bridge

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