Here is a short summary of the major economic news of the past two weeks in South Africa.
The Cap40 team will now regularly publish news from the French consulate in Pretoria in order to give you fresh insights on the most important economic matters in the country and region.
Eskom’s integrated results highlight an increase of operational costs and high pressure on the company’s financial sustainability.
Eskom released its integrated results for the financial year ended 31st March 2014. The major concern raised by those results is the significant increase of the electricity producer’s operational costs (+10,9% while the turnover increased by 8,3%).
Those increasing costs are mainly due to the high use of the most expensive open-cycle gas turbines in order to ensure continuity of supply. The high maintenance costs incurred by the ageing plants and the belated integration of new plants to the grid also contributed to the uncontrolled increase of Eskom’s operational costs.
Concerns are equally raised regarding the financial viability of the company. Standard & Poor’s recently downgraded Eskom’s rating and placed it on CreditWatch with negative implications, while Fitch put Eskom’s outlook to “negative”. The company noted that a strengthening of its capital structure and a greater support from the government was necessary in order to ease the concerns of rating agencies.
The company’s statement emphasises that the successful but belated integration of Medupi and Kusile power plants, and electricity generated by Independent Power Producers, and subsequently integrated to the grid, would be key factors to respond to the increasing demand and avoid new episodes of load-shedding.
Minister of Energy confirms that nuclear power will play a key role in South Africa’s energy mix.
Following President Jacob Zuma’s emphasis on the importance of nuclear power in his State of the Nation Address in June 2014, Minister of Energy Ms Joemat-Pettersson said in her Policy Budget Speech that nuclear power would be key to South Africa’s energy mix. She set as a target the integration of 9,600 nuclear-generated MW to the national grid.
To hit this target, she noted that a budget of R850 million was dedicated to conducting feasibility studies and research on nuclear power.
Ms Joemat-Pettersson finally highlighted the fact that the development of the nuclear industry in South Africa was critical to achieve the country’s commitments in terms of reduction of CO2.
The fourth tender of the program for power generation from renewable sources by Independent Power Producers will be launched in August.
In her Policy Budget Speech, the Minister of Energy confirmed that the tender would be opened as scheduled in August. The projects launched by the fourth tender of the program will add 1000 MW from renewable sources to the national grid.
The ministry however warned that the closure of the financial structure of the projects of the third tender would be delayed to November 2014 due to financial uncertainties such as the volatility of the Rand.
Besides, 350 MW will be integrated to the grid as the construction of the plants included in the first two rounds of the program is coming to an end.
Ms Joemat-Pettersson highlighted that shale gas exploitation in the Karoo would be envisaged provided that the highest environmental standards are completed. The national Gas Master Plan, which release will take place in the following months, will emphasise on the regional integration of gas infrastructures, with a particular focus on cooperation with Mozambique and potential resources of shale gas in the Karoo region of South Africa.
South Africa goes solar!
The African Development Bank has approved US$142-million loan for a new solar power project in the Northern Cape.
The $908 million project, set up in SPV, is co-owned by the operating company Abengoa Energia (40 %), the Industrial Development Corporation of South Africa (20 %), the Public Investment Corporation (20 %) and a BBBEE partner (20 %). The debt was brought by the African Development Bank, other development finance organizations and three South African commercial banks.
The 100 MW plant will be constructed and operated by the Spanish leader in solar thermal energy Abengoa Solar, currently involved in two other solar power plant projects in the Northern Cape.
The new power plant will be situated beside the KaXu Solar One plant, those two forming the largest solar complex in Africa. Abengoa’s chief executive said the technology used in those plants has come to maturity and can efficiently produce, stock and distribute clean power to 90,000 households, a 20-years off-take agreement having been signed with Eskom.
Amplats intends to sell the majority of its assets in South Africa.
The world-leading platinum producer Anglo-American Platinum (Amplats) said it would sell the mines of Union and Rustenburg and its shares in the joint-venture with Lonmin in Pandora mine.
This decision follows the five-month long strike in the platinum mine, which caused a 40% drop of the production of the company, and an estimated loss of up to R10 billion. However, thank to its massive destocking in the first semester 2014, Amplats saw its turnover increase by 15,3%.
The freight company Transnet increases its profit by 24.9% for fiscal year 2013-2014.
The public company operating in rail freight, ports and pipelines, reached a profit level of R5.2 billion. This growth is mainly due to the increasing freight transported by rail, the peaking numbered of containers shipped, and the recovery of the volumes of oil transported in pipelines.
Transnet’s upcoming projects include the new pipeline between Durban and Johannesburg, the acquisition of Durban’s old airport, its rehabilitation and transformation into a port, and the renewal of the railway infrastructures.
The national airline company South African Airways plans the purchase of 30 aircrafts.
After the postponement of three acquisition programs aiming at renewing its long-haul fleet, SAA announced it planned to purchase 30 aircrafts before the end of the year. The delivery would take place in 2017-2018. Airbus and Boeing are the two companies most likely to benefit from this tender.
Alstom increases its order book in 2014.
The French company received international orders for R8.2 billion during the second trimester of 2014, increasing by 100% compared to 2013. This unprecedented level of orders follows the massive 4 billion euros contract signed by the transport branch of the multinational with the Passenger Rail Agency of South Africa (PRASA), for the order of suburban trains.
Standard Bank to grant $170 million to Gigawatt for the construction of Mozambique’s largest gas power plant.
The power plant will be located at Ressano Garcia, at the border between Mozambique and South Africa. It will be supplied by the gas field of Pande and Temane and will generate 175 MW. The $270 million project will be backed by a joint-venture between Electricidade de Moçambique (EDM) and Sasol.
The power plant will cover 12% of the electricity demand, therefore securing the country’s power supply. Mozambique is indeed currently facing an electricity shortage and is a net importer of power. This program also aims at diversifying the country’s energy mix, currently heavily dependent on hydroelectric sources.
The Agence Française de Développement (AFD) will contribute to the program with a $52 million loan to EDM.
Tax revenues from mining now account for 15% of Mozambique’s public revenues.
From 2% in 2010, the revenues from taxation of mining activities have peaked to 15% of the state’s income, reaching $583 million. Those revenues mainly come from the taxation of exploration activities in the natural gas fields of Pande and Temane (Inhambane province), of heavy sands from Moma and coal from the Tete region.
The mining resources minister noted that the amount of coal exported skyrocketed in the past few years, Asia being the main market for Mozambican coal.
The main stakeholders of the industry are Brazilian company Vale, Anglo-Australian Rio Tinto and Indian groups Jindal Steel and Power Limited (JSPL).