The economic consequences of load shedding

[Dave A]

We have massive losses in the mining sector.

The "nightmare" of South Africa's major gold, platinum and diamond mines shutting down because of power failures became a reality on Friday.

"Tens of millions of rands a day are being lost. It's a nightmare," said T-sec chief economist Mike Schussler.

The JSE gold mining sub-sector closed almost 6% lower on Friday. The move contributed to the gold price rising. The London afternoon fixing was up $12, to $918,25 an ounce.

Chris Hart, an Investment Solution economist, said mining was a key industry for the country.

"From that point of view the [power] cuts seem ... almost a disaster."

The Chamber of Mines earlier announced that several gold and platinum mines had to shut down operations because Eskom could not guarantee power supplies on Friday.

Harmony Gold spokesperson Amelia Soares said the company had only run emergency facilities on Friday.

The company would lose about R60-million from Friday's suspended operations, she said.

Gold Fields spokesperson Willie Jacobsz said the company was losing production of about 7 000 ounces a day.

The impact of power cuts was "very, very dramatic. It is radical ... unprecedented," he said.

AngloGold Ashanti said it had halted mining and gold recovery operations throughout the country.
full story from M&G here

[duncan drennan]

I found this quite chilling,

Apparently Eskom faces a bill of more than R7 billion to get its coal stocks back to about 20 days. They are currently precariously poised at between 2 and 3 days supply. And the quality of the coal has been affected by excessive rain.

From energycrisis.co.za

Do you think the coal mines are still receiving energy? Are we balanced on the knife edge of moving from crisis through to disaster?

[Dave A]

The same article I quoted above reported coal mines as running at full speed to keep Eskom fed.

I actually read a number of articles today trying to get a sense of the problem.

You know that a motorcar engine has a red line? A point at which you start doing significant permanent damage? I get a sense that Eskom has been redlining the generators that are online and some have started popping.

[murdock]

give these people rubber mallet and they will break it.

[irneb]

Apparently Eskom faces a bill of more than R7 billion to get its coal stocks back to about 20 days. They are currently precariously poised at between 2 and 3 days supply. And the quality of the coal has been affected by excessive rain.

Now, what happens if Eskom cuts the power to the coal mines as well ? That's something like shooting themselves in the foot and the arm and the head, etc. But I wouldn't be surprised, they've already turned the power to their own admin offices off (at least once).

[Dave A]

South Africa, which had forecast five-percent annual growth until the end of the decade, will struggle to hit half that figure owing to its electricity crisis, economists warned on Tuesday.

"It's a question of if we can get the growth to three percent which, given the crisis the country finds itself in presently, I don't think we will," said Mike Schussler, senior economist at Johannesburg-based brokerage T-Sec.

"We may have to settle for at least two percent, depending on the severity of the crisis."

Presenting his annual budget last February, South Africa's veteran Finance Minister Trevor Manuel painted a rosy picture of the nation's economic future, predicting growth would be at least five percent in the coming three years.

But while the government has yet to concede its plans have been blown off course, economists say the drastic shortage of power which has forced daily blackouts will inevitably lead to a smaller level of growth.
extract from Business Report here

More than just current losses, there would seem to be a long term effect.

[irneb]

More than just current losses, there would seem to be a long term effect.

Not to mention companies deciding to close shop now, because they can't make a profit during this crisis. Especially those in the industrial sector which have very long turn-around times for their equipment, for a 2 hour power cut they may loose up to a day (or even more). That may even trigger a negative growth, i.e. rising unemployment.

Also, foreign investment will take a long term knock. Because it will take some time to get the stigma of a "powerless" country out of their minds, even if we can get around this crisis in the near future (the damage has already been done).

[siya2008]

hi
This is an economy issue + politicians failure = economic decline

I will briefly explain the above formula. When eskom presented a new plant project (economy issue) to Thabo Mbeki he was happy and he forget to ask(politicians failure) eskom disadvantages of this project. Today community and business are suffering(economic decline)

[IanF]

Who will be accountable for this and what will happen to them. I see no leadership from either our President or the CEO of Eskom on this crisis. That is disappointing.

[Dave A]

I see no leadership from either our President or the CEO of Eskom on this crisis.

I think they are too busy ducking shrapnel. What we have seen so far is a panic response - there is very little evidence of a carefully considered and planned response to this.

I don't know about how everyone else is going, but this week I've suffered no load shedding anywhere. Has load shedding in the cities been reduced? It would seem so.

Where has the extra power come from to keep the cities running? The mine shut down. Apparently the mines account for about 17.5% of the total load.

The mines were informed that they could not rely on getting the power they needed. They had no choice but to shut down. Effectively, they were load-shedded as surely as if someone threw the switch.

Who made the decision that the mines might be load-shedded?

More importantly, why was that decision made?

Were the mines traded in an attempt to pacify the people?

[duncan drennan]

I think it might have run a little differently.

Eskom was having a larger and larger deficit (due to the unplanned outages, i.e. coal and maintenance issues). Apparently nearly 10000MW was out on 28 Jan. With this large a deficit you start to face two options, either shut down a large chunk of power (in this case the mines), or have the whole country go down. The grid could become unstable and poof - no more electricity, for anyone, for a while.

In that situation I would negotiate with my largest consumers (fewer to manage) and strike a deal, which seems to be the case with the mines. For the miners it is a case of either maintaining the mines at 50% energy, or possibly losing them alltogether (if there is no electricity). Lesser of two evils I suppose.

In the meantime Eskom has to work super hard to get the capacity back up to "normal."

Just a thought.

[IanF]

I don't know about how everyone else is going, but this week I've suffered no load shedding anywhere. Has load shedding in the cities been reduced? It would seem so.

Dave
We had 2 hours on Monday. For irony we had just printed a proposal for a French company for a power station on the weekend and they came in to get an invoice. We had no power so I had to give them a PDF invoice as we invoice from a laptop, so I could do that. The guy then said we have another 5 years to go of power cuts.

[Dave A]

Just a thought.

Same with my post - frankly your scenario is more likely but mine was wicked
Or maybe just hopeful that this government does actually get concerned about its citizens every now and then.

Anyway, with the mines coming back on stream, I expect we'll be back to major rolling blackouts again soon enough.

[Dave A]

Load shedding to hit food inflation
The negative impact of power outages on bakeries, milk producers and processors, and bottlers of perishable foods, which have been suffering severe losses from electricity blackouts, is adding to concerns of no imminent easing in food inflation, says economist from Standard Bank, Danelee van Dyk.

Sharp food inflation, together with energy issues, have been the key bugbears in keeping South Africa's CPIX inflation above the upper 6% upper band for nine months running. The latest data today shows CPIX at a whopping 8.6 percent year-on-year.

"The financial loss related to the current load shedding by a leading milk producer is already estimated at three million rand, but could run to as much as R600-million. Production losses as a result of power outages could reduce supply in these food groups, which may find its way into higher food prices," explains Van Dyk.
full story from Business Report here

Load shedding is certainly a threat when it comes to food safety as it increases the prospects of breaking the cold chain.

Saturday night we had to throw away a chicken that was meant for dinner. Sue had bought it that morning. Once the packaging was removed, there was that sickly smell of meat gone bad. The cold chain had been broken.

[Dave A]

Jobs are on the line.

About 800 workers face retrenchment at BHP Billiton's Bayside aluminium smelter in Richards Bay, the National Union of Metalworkers of SA (Numsa) said on Tuesday.

Spokesperson Mziwakhe Hlangani said management had confirmed that it would be issuing final notices to the affected workers at the weekend and the retrenchments would be effected on April 1.

The development follows Eskom's demand that big electricity consumers reduce their power consumption by 10%.

He said the drastic decision to lay-off metalworkers took place at a time when Numsa had made earnest appeals to the African National Congress and the minerals and energy parliamentary committee to intervene, as planned retrenchments were connected to the countrywide power crisis.

Rather than ensuring that other feasible alternatives were considered -- such as buying big industrial power generators -- the resources company once intimated that it planned to relocate its smelters to the Democratic Republic of Congo, the union charged.

Numsa said it had always been aware that the closure of smelters in the town would affect more than 20 000 families. And, for that reason the union called on the government and other stakeholders to urgently adopt a social plan, because the area would be negatively affected.
full story from M&G here