Supplementary Budget 2020

Mantashe: The economy is going to collapse if electricity remains this expensive

Mineral and Energy Resources Minister Gwede Mantashe (Gallo)
Mineral and Energy Resources Minister Gwede Mantashe (Gallo)
Government is pushing coal producers to cut prices to help save Eskom, the indebted power utility that threatens to unravel the country’s finances.

“At these prices of electricity, this economy is going to collapse,” Mineral and Energy Resources Minister Gwede Mantashe said Thursday at mining conference in Johannesburg. “You have got to reduce the prices -- what we are saying is coal producers must contribute in ensuring that is actually addressed.”

Eskom, which provides about 95% of South Africa’s electricity, relies on coal to generate most of its power. Several ministries last week approached both coal and renewable energy producers to ask for lower-cost supplies as the government scrambles to rescue the unprofitable state-owned utility.

“We are talking to them, we are not instructing them,” Mantashe said. “The steps are, one you talk to coal producers, they make a commitment, talk to renewables, they make a commitment.”

Coal producers plan more talks with the government over the supply and cost of the fuel, according to the Minerals Council South Africa, the country’s mining lobby.

“Careful consideration is being given to being mindful of competition regulation,” it said in a statement.

Eskom’s primary energy costs increased by 17% in its most recent financial year, due to higher coal charges and increased production from independent power producers.

Mantashe said the government is also worried that Eskom’s value could be destroyed should the transmission business be split off. “If you sell transmission, you are saying close down Eskom,” he said at the Joburg Indaba conference.

Unbundling 

Over recent months, president Cyril Ramaphosa and finance minister Tito Mboweni have repeatedly confirmed that Eskom will be restructured into three entities – generation, distribution and transmission.

At his Budget presentation in February, finance minister Tito Mboweni said a separate transmission company with its own board operational would be set up.

Mantashe said South Africa’s resources plan will be presented to Cabinet next week, adding that calls to abandon coal immediately show “shortsightedness.”

Mining executives, investors and officials are gathering in Johannesburg for the second day of to discuss the industry’s investment prospects after years of regulatory uncertainty.

Overall, it’s been a good year for South African miners as the rally in iron ore, gold and platinum-group metal prices boosted earnings and put dividends back on the agenda. Still, looming labor disputes, a reliance on a weak currency and the slow demise of gold mining leave the industry with plenty of challenges.

- Additional reporting by Fin24

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