WE ARE all against the high electricity tariff proposals that Eskom keeps bringing before the National Energy Regulator of South Africa (Nersa) as it embarks on what is an essential expansion programme to ensure there is no repeat of the January 2008 blackouts.
While the state-owned giant that provides about 95% of our electricity needs may not get its request for a 16% increase in tariffs on Thursday, it will most probably still get an increase above inflation.
We will all be relieved that Nersa took objections from the government, business and the public into account when deciding not to accede to the request.
Eskom will just have to hobble along, while ensuring that Africa’s biggest economy has stable energy supply. This may prove more manageable for the time being as the global economy struggles to gain traction and energy-intensive smelters continue to run at a fraction of their capacity. But it doesn’t obscure the fact that South Africa — compared with emerging market peers — is still an energy-insecure nation, which dents our competitiveness.
But this shouldn’t be the case, given that we have coal reserves that could last 300 years. Not to mention that at some stage, the government will have to embark on a nuclear build that could more than double current capacity.
Coal is one of Eskom’s biggest costs and has been highlighted by the parastatal as one of the main reasons behind rapidly rising costs of electricity.
If we were a country sitting without the vast coal resources in Mpumalanga and the Waterberg in Limpopo, it would be perhaps understandable that coal supplies are tight and set to remain so for decades to come.
But we aren’t. There’s more than enough and there’s an energy-hungry client that may in fact have to build another coal power station in the not too distant future.
It raises the question, why are we not seeing more mines being developed? There’s a solid business case for the country to exploit more of the resource.
Some, like Ivan Glasenberg, the man set to be CEO of the merged Glencore and Xstrata, see a bigger future for the merged entity in South African coal than platinum.
So what’s holding back development? A little-mentioned factor among many is the farmer.
Getting cattle and grain farmers in these fertile lands to sell their land to Eskom, which will lease it back until it’s time to exploit the resource, has gradually become more difficult.
With maize and wonder crops like soya beans becoming more lucrative, it’s likely to become even more difficult for the energy giant to secure long-term coal supplies.
Because of rising food prices, which are set to continue as the global population continues to increase, securing coal is becoming a bigger and bigger headache.
Farmers can virtually name their price and Eskom, which is still funding its expansion project, is finding it difficult to meet the prices. Apart from the expense of land, farmers have warned that turning their land into pits may put long-term food security at risk.
But rapidly increasing electricity prices make the economy a lot less competitive.
If Nersa rejects Eskom’s tariff request, the next step is for the regulator, the Treasury, the Department of Agriculture and all stakeholders is to reach agreement on how to secure future coal supplies. The longer this goes unresolved, the higher the rate of increases of electricity and the less competitive we become.
When global growth comes back on stream (at some point), the more successful nations will be those that have managed to boost their competitiveness. Apart from such important matters as labour and education, energy security is an important box to tick.
The growth of the Indian economy has been to large extent derailed by its energy crunch, while China, has vigorously expanded its generation capabilities.
We need to strike a fine balance between energy and food security, both integral to the future health of South Africa Inc.
AS EXPECTED, US Federal Reserve chairman Ben Bernanke cooled the threat of an imminent end to quantitative easing and low rates for global markets this week.
Cheap money is with us for some time to come. With the US housing market — the trigger of the financial crisis — only now coming back to some health, it would be ill-advised to cut short that recovery. The US must keep its citizens in their homes if it does not want to derail its recovery.