JOHANNESBURG (miningweekly.com) – The Chamber of Mines (CoM) has joined the ranks of industry stakeholders concerned about State-owned power utility Eskom’s R22-billion Regulatory Clearing Account (RCA) application to the National Electricity Regulator of South Africa (Nersa) in respect of 2013/14.

“This application is over and above the 8% tariff increase Eskom was granted for that year as part of the third multiyear price determination,” said CoM CEO Roger Baxter in a statement released ahead of the Nersa public hearings, which took place at Midrand’s Gallagher Convention Centre on Thursday and Friday.

Baxter added that the mining industry supported Eskom’s intention to resolve the country’s long-term energy crisis. He reiterated that the chamber had no objection to the recovery of unforeseen costs arising from circumstances that Eskom could not control.

“However, Eskom’s R11.7-billion lower-than-planned-for revenue was caused, by its own admission, by [the entity’s] own failure to manage its projects and operations efficiently.”

Baxter further highlighted the additional estimation of R8-billion that needed to be recovered as a result of unbudgeted-for spending on diesel power generation.

“Again, this arose as a result of poor performance of generation plants amounting to some 75% availability and late commissioning of new power stations,” he said. 

CoM technoeconomics assistant adviser Dick Kruger said the chamber was worried about Eskom’s proposed tariff hikes not only because Eskom was the major energy carrier in the mining industry, but also because of health and safety concerns.

Representing the chamber at the Nersa hearings, Kruger noted that, in underground mines, for instance, things like air cooling, ventilation and pumping  accounted for between 50% to 55% of the total electricity used.

“If that percentage of energy use decreased, mines would have to stop production because it would be harmful to employees,” he said.

Kruger added that, since 2008, the cost of electricity in the mining sector increased by 19.4% and that any further increase was going to push that figure well over 20%.

“Contrary to what some people think, the mining sector remains significant to South Africa’s economy. Minerals exports amount to 26% of merchandise exports. The mining industry also supports many secondary industries – upstream as well as downstream,” he noted.

Kruger further pointed out that the mining sector was currently at one of its lowest ebbs and that the global economic downturn had resulted in low commodity prices.

“This was [aggravated] by the constrained electricity supply, which hampered production in many sectors. We are experiencing cost inflation and a large percentage of mineral resources and mining operations are becoming unprofitable,” he said.

He noted that the restructuring of mining companies was taking place on a daily basis and that job losses were looming, compounded by the restrained electricity supply.

He added that, in the last few years, there had been a decrease in production, also owing to commodity prices.

Kruger highlighted that the chamber’s chief objections to Eskom’s RCA application was the utility’s use of diesel-fueled open-cycle gas turbines (OCGTs) and the excessive coal price, among several other concerns.

“If the construction of Eskom’s Medupi power station was on schedule, we would have a lot of spare electricity today and there wouldn’t be any need for expensive OCGTs. The chamber does not support the recovery of this cost, which we believe could have been avoided by better management,” stressed Kruger.

Nersa’s nationwide public hearings into Eskom’s R22.8-billion RCA application, which got under way on January 18, would come to a close on Friday.

The bulk of the R22.8-billion adjustment Eskom was asking for was made up of reduced revenues of R11.7-billion and increased primary energy costs of R14.4-billion.