GROWTH AND DEVELOPMENT
Expensive Eskom power will unravel SA's plans for growth
The government has hailed beneficiation as a key to job creation, GDP growth, development of the South African economy and maximisation of the return on investment.
There is misalignment between the imperative to beneficiate and the affordable and sufficient supply of electricity to the mining sector. Beneficiation cannot occur outside of a steady, affordable and sustainable supply of electricity.
Eskom generates 95% of electricity consumed in SA, and though there has been a push for more independent power producers, a report by Deloitte in 2017 says these producers generate only 5% of electricity.
The International Energy Agency recorded in 2006 that Eskom’s household and industrial electricity tariffs were among the lowest in the world. Deloitte says Eskom’s average electricity tariff has increased 147% since 2007. There are reasons for this significant increase in the tariffs that extend beyond the scope of this article.
Developing local capacity means creating conditions in SA that encourage, benefit and equip the beneficiation sector for beneficiation
Nonetheless, the increase in the electricity tariffs contributes to the increase in the cost of production. Where the cost of production exceeds market prices or makes it unprofitable to produce, the sector’s growth will be stunted.
This has been the case in the beneficiation sector of SA’s mining industry. Section 2 of the Mineral and Petroleum Resources Development Act 2002 clearly seeks to create access to the mining industry, and this includes beneficiation. Accordingly, the challenges that will hinder access to the mining industry must be addressed by the custodian of mineral resources, namely the state.
In 2008 the act was amended by the Mineral and Petroleum Resources Development Amendment Act to, among other things, include a definition of beneficiation and empower the mineral resources minister to initiate efforts for beneficiation.
The definition of beneficiation in section 1 of the act includes a four-stage process that broadly encapsulates the process of winning minerals from the ground to "fully and finally" process and manufacture value-added products from such minerals. The act takes a very broad approach to beneficiation, highlighting the state’s desire for the development of the sector.
In a related fashion, section 26 of the act gives the minister the power to "initiate or promote the beneficiation of minerals in the republic".
It is apparent that section 26 is very weak and, accordingly, the amendment bill seeks to strengthen this provision by including pre-emptory language and obliges the minister to, among other things, "develop local capacity".
Developing local capacity means creating conditions in SA that encourage, benefit and equip the beneficiation sector for beneficiation. Though the provisions of the amendment bill are not law yet, these provisions clearly map Parliament’s intentions with the sector and what responsibilities ought to fall on the minister.
The electricity pricing and supply issues facing beneficiating miners do not fall outside the scope of section 26 as it reads today, and certainly fall within the mandate to develop local capacity in the amendment bill.
Accordingly, the minister has the power to initiate efforts to push beneficiation endeavours in SA. The minister need not even wait for the amendment bill to become law. Part of this would be actively engaging with miners who seek to beneficiate with Eskom, the National Energy Regulator of SA, local municipalities, the Department of Energy and the Department of Trade and Industry, to name a few. Such engagements should be intentional and present incentives for each of the stakeholders.
The pricing issues and ultimately the supply of electricity are matters of national importance that require apt action from all stakeholders. They must pull in the same direction towards an optimal beneficiating sector, and this cannot be done without due concern for the electricity supply for the sector.
• Sitefane is a senior associate, and Jara a director at LNP Attorneys.