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27 April 2017
Article by: Terence Creamer - Creamer Media Editor
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Energy, or the lack thereof, has emerged as a "top-three" risk factor for potential investors into South Africa, having not featured at all as a key risk until some three years ago, business risk consultancy Control Risks said on Monday.

In fact, the consultancy indicated that South Africa had, until 2007, received credit for what were then perceived to be a strong suite of infrastructural assets.

Together with crime and the skills shortage, the inadequacy of Southern African infrastructure, and more specifically power infrastructure, was now viewed as a material constraint to investment, senior Southern Africa analyst Anne Fruehauf said at briefing in Johannesburg, convened to unveil the company's latest ‘RiskMap 2010'.

In fact, the publication, which MD David Butler said covered the business-risk environment for 2010 across 173 countries, asserted that the electricity crisis, which had abated in line with the falling demand associated with the recent recession, could soon re-emerge across the Southern African Power Pool (SAPP).

The analysis came only days after Statistics South Africa (StatsSA) reported that South Africa's power consumption had jumped 7,5% year-on-year to 18 850 GWh in December - its biggest increase since February 2004, when consumption rose 6,9% year-on-year.

StatsSA also reported that electricity use for the three months ended December 31, 2009, rose by 3%, or 1 680 GWh, to 57 999 GWh, compared with the 56 319 GWh used in the fourth quarter of 2008.

Further, Eskom's chief officer for networks and customer service Erica Johnson warned recently that, while there was no short-term threat to security of supply, the system would be extremely vulnerable from 2011 through to 2012, ahead of the synchronisation to the grid of Medupi's first of six 790-MW units in April 2012.

Taking a more regional perspective, Control Risks said that there had been a slowdown in new projects across Southern Africa, as well as a fall off in maintenance spending.

"Much key, but already overstretched infrastructure will bee in a worse state of dilapidation post crisis than it was two or three years ago," the 60-page report cautions in its chapter on Africa.

"The consequent lack of spare capacity to support an economic upturn will once again impose an unbreachable ceiling on growth and expansion prospects," the report averred, while noting shortages in other infrastructure across the territory. However, it did note that the 2010 FIFA World Cup had spurred a significant amount of transport-related infrastructure investment in South Africa.

Fruehauf said that part of the SAPP would experience the re-emergence of the power crunch during 2010.

"The recession had a mixed impact: it provided a brief period of respite for the ailing power sector, but at the same time, it created a forward financing challenge," she explained.

South Africa's power utility Eskom was seeking ways to overcome a major funding deficit for a R400-billion build programme and had submitted a request for tariff increases of 35% a year between 2010 and 2013, to help it part fund this capital programme. The National Energy Regulator, which held public hearings into the matter during January, would pronounce on the increases on February 24, 2010.

The expenditure on power projects, Control Risks said, would "eventually ease this crunch", but it would persist for at least two to three years more.

Fruehauf believed that there would be a strong temptation to pass a disproportionate portion of the higher costs on to the so-called energy-intensive industries operating in Southern Africa.

But there was also a "quiet privatisation" agenda emerging in South Africa's electricity supply industry, as one of the solutions to deal both with the energy shortfalls, as well as Eskom's balance sheet and skills limitations.

"This privatisation agenda is emerging despite general talk of the developmental State and the even more vocal nationalisation debate. I think this will be a very interesting undercurrent to watch in 2010," she added.

The funding constraints would also reinforce the role of development finance institutions, such as the African Development Bank and the World Bank, as well as potentially open the way for a greater role in the energy sector for the so-called ‘Bric countries' of Brazil, Russia, India and China. But any transaction would be "heavily politicised" and subject to "elite interventions".



Edited by: Creamer Media Reporter
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