/ 31 January 2008

Govt: No investment threat from power cuts

South Africa’s crippling power crisis will not put off investors, nor limit its ability to stage the 2010 Soccer World Cup, Public Enterprises Minister Alec Erwin said on Wednesday.

Rolling power cuts have plagued homes, businesses and the crucial mining industry in South Africa for weeks and are likely to continue for about five years, according to state power utility Eskom.

Economists have warned that the power crunch could severely crimp growth in Africa’s richest economy and threaten a multibillion-rand infrastructure plan, partly aimed at preparing for the soccer tournament.

South Africa’s economy has flourished for the last several years, although it still lags its emerging-market peers in the area of foreign investment and has desperately tried to lure investors since the end of apartheid in 1994.

The Soccer World Cup was seen as an ideal way of marketing the country to tourists and drawing much-needed foreign money.

Erwin said energy issues would not derail these efforts.

”We are engaging with investors … We believe the investment process and the growth process will continue,” Erwin told a joint sitting of Parliament called to debate the energy meltdown.

”And we are also absolutely certain that there is no risk to the security of electricity supply for 2010,” said Erwin.


Precious metal prices were pushed to historic highs as mines slowly returned to normal production this week after power cuts last week forced mines in the country’s massive gold and platinum industries to close down.

Eskom agreed on Tuesday to increase electricity to mines by up to 90% by the end of the week.

However, the state warned it would start rationing electricity as it sought to reduce national energy consumption by 10% and help save 4 000MW of power, raising the ire of businesses and citizens tired of being plunged into darkness.

Minister of Minerals and Energy Buyelwa Sonjica apologised for the disaster to South Africans on Wednesday and urged the use of solar heaters and fluorescent lights to conserve energy.

”I must take the opportunity to apologise to all South Africans for the hardship and inconvenience caused by this unfortunate turn of events,” Sonjica said amid heckling and hissing from opposition benches.

Her apology follows others from President Thabo Mbeki and his deputy, Phumzile Mlambo-Ngcuka, after opposition parties called for heads to roll and blamed the government for ignoring warnings of the energy crisis years ago.

The minor opposition Independent Democrats party is expected to table a motion of no confidence in Parliament against Mbeki on February 12 over the executive’s inability to handle the energy crisis.

The step is unlikely to succeed given the African National Congress’s dominance in Parliament but it gives an idea of the extent of anger over the crisis.

‘Cutting economic growth’

Meanwhile, South Africa’s mines roared back to life on Wednesday after the power crisis that crippled the key industry for five days, but concern lingered over output and earnings losses and more power supply disruptions.

Thousand of workers in the major gold, diamond and coal producer and the world’s top platinum miner, resumed underground blasting and digging after the state power firm Eskom boosted power supplies to the industry.

The Cabinet has described the situation as a national emergency.

The power crisis has badly shaken investor confidence in Africa’s biggest economy, and is likely to slow economic growth and dent foreign direct investment. By halting South Africa’s iconic mining sector, the power shortage has driven precious metals prices to historic highs and hurt the rand currency.

”If you cut electricity consumption, you’re effectively cutting economic growth,” said Razia Khan, London-based regional head of research Africa at Standard Chartered.

”Yes, the mining sector is continuing, but it is not at full tilt and won’t be able to take advantage of the booming commodity prices. Also, all capital expenditure, or additional projects or refurbishment will be put on the backburner.”

Eskom has warned South Africans to expect a bumpy ride ahead because its power generation capacity is still lagging demand. — Reuters