/ 25 March 2019

Nersa increase places 90 000 mining jobs at risk

Stats SA noted in its GDP release that there was increased production reported for platinum group metals, which have experienced a massive uptick in demand amid the commodity cycle. (Oupa Nkosi/M&G)

Although the National Energy Regulator of South Africa (Nersa) granted Eskom lower tariff increases than what it requested, over 90 000 jobs in the mining sector remain at risk, the Minerals Council of South Africa said on Monday.

Earlier this month, Nersa announced that Eskom would receive 9.4% in 2019/2020, 8.1% in 2020/2021 and 5.2% 2021/2022, instead of tariff increases of between 15% and 17% that it requested over that three year period. In addition to this, in 2018 the regulator granted Eskom permission to claw back R21.6-billion for energy that was not sold in the previous three years adding, a 4.4% tariff increase which places the 2019 increase at 13.2%.

READ MORE: Eskom’s price hike will hit jobs, place handbrake on economic growth

The council, which represents over 90% of the mining industry, said that based on the approved tariffs exactly 90 222 jobs will be at risk. This is 22 879 jobs in the platinum sector, followed by 28 577 in other mining commodities and 8 327 jobs in the gold sector.

Initially, when Eskom made its tariff application the council estimated that it would cause 150 000 job losses while hastening the demise of the gold sector and severely impacting the platinum sector.

The council said while the tariff increases are less than what the embattled power utility wanted, it still amounted to 85% of what it had requested when you include the 4.4% regulatory clearing account’s clawback figure.

“The implication is for us as a mining sector, contributing to the economy and creating employment, quite severe… what is not realised is because we are consuming so much Eskom is not going to get the income that they have bargained for because of the losses that we think will happen,” Henk Langhoven, the chief economist at the council said.

READ MORE: It’s mine, all mine

Langhoven stated that, excluding the downstream economic impacts, in the gold sector alone one job supports about 6 people while on average the dependency ratio in the mining sector sits at 10 people supported by each mining job.

“So, in other words, it’s like a little pebble that you throw in a dam it has little waves that hit all over,” he said.

The mining industry consumes 30% of Eskom’s annual power supply in its mining and smelting operations. An information report by the council states that if the industry’s usage declines because electricity increases have made operations expensive and unprofitable “Eskom will not achieve its targeted sales volumes”.

“Inevitably, the increases awarded to Eskom will only serve to accelerate the power utility’s downward spiral that will come as a result of inflated tariff increases and declining electricity usage by a critical consumer,” the report says.

READ MORE: Outages: Problems and solutions

Roger Baxter, the chief executive of the minerals council, said that if one assumes that nothing else changes, the kind of pricing increases on electricity will lead to further shutdowns in mining activity, smelting activity and negatively impact future investment.

Baxter said they were also engaging with Eskom and other relevant government stakeholders to come up with solutions to the current power crisis and the pending restructuring of the utility.

“I think the unions need to come to the party and I’m going to be blunt about that. They keep on saying they refuse to allow Eskom to be restructured but what is the alternative? The status quo is not tenable” Baxter said.

He added that it was not just about the variability in pricing that affected the sector but this is compounded by unpredictable supply when considering the loadshedding experienced over the past week.

“For deep level mining companies who might have 150 000 to 200 000 people down in the morning shift, you go into stage four load-shedding you see 20% demand curtailment, which is a significant hit,” Baxter explained.