The metals industry watched intently last week as state-owned, South African power company Eskom Holdings Ltd. announced how it plans to fund a 343-billion rand ($45.04-billion) capacity expansion program.
South Africa is suffering a severe power shortage resulting from government delays of the utility's expansion program. The country's power issues must be resolved if heavy industry there is to expand.
To address the shortfall, Eskom now plans to spend billions over the next five years to boost generating capacity by 11 percent to 47,681 megawatts.
Jacob Maroga, Eskom chief executive officer, said that the company will borrow up to 150 billion rand ($19.7 billion) from local and international capital markets. About 60 percent of that total will be obtained from international markets and lending institutions, with the rest raised locally, he said.
On Friday, South Africa's treasury said in a statement that it would lend Eskom 10 billion rand ($131.3 million) in the 2008/09 financial year, under a plan to help the utility expand its generating capacity. Also, the treasury will accelerate the disbursement period?from five years to three years?for a promised 60-billion rand.
Eskom said early last week that its full-year profit dropped 86 percent as coal prices jumped and it spent more on diesel to ease a national electricity shortage. Net income fell to 923 million rand ($121.2 million) in the year to March 31, from 6.5 billion rand the previous year, the company stated in its annual report.
"Power supply interruptions of the scale seen during the reporting year have been unprecedented in South Africa. Meeting an increasing national demand for electricity with a much-diminished reserve has undoubtedly been Eskom's biggest challenge for this past financial year," Maroga said.
But even Maroga freely admits that the there is no quick fix. "The challenge of operating a power system that has a low reserve margin should not be underestimated. It is serious, deep, material and will take a few years to resolve. Our response to this challenge has to be comprehensive, with interventions on both the demand and supply side," he said.
Until the power situation is rectified, Rio Tinto Alcan, Montreal, has shelved plans to construct a $2.7-billion aluminum smelter. The 720,000-tonne-per-year smelter would be built in Coega in the Eastern Cape province of South Africa.
A long-term energy agreement for the proposed smelter was signed between Rio Tinto and Eskom in November 2006, but Eskom said it might not be able to accommodate large smelter projects, as it had in the past, and that it might have to change its policy toward supplying power to large users (AMM, May 23).
Ferroalloys is another market that has been hit hard by South Africa's power problems. The price of ferroalloys has been buoyed by disruptions in South Africa as Eskom requires that metals producers use no more than 90 percent of the electricity they normally consume.
Hernic Ferrochrome (Pty) Ltd. is working with BioTherm Energy (Pty) Ltd. in hopes to gain an independent power supply, adding to the electricity it receives from Eskom.
BioTherm, an independent power producer, will invest between 300-million rand and 400-million rand ($39.4 million to $52.5 million) in a boiler and steam turbine plant, which will use the off-gas from Hernic's ferrochrome furnaces near Brits, South Africa. The company hopes to have the plant up and running in three years.