[DEBATE] : (Fwd) ANCrony electric capitalism

[Patrick Bond]

(Ok, does anyone still have any last remaining doubts about the capacity 
of the regime to become 'developmental' now?)

www.bday.co.za

06 February 2008
Cheaper power lure for foreign investors
Mathabo le Roux

Trade and Industry Correspondent

DESPITE SA’s power supply crunch, the government is persisting with a 
scheme to attract electricity-intensive investments to SA by offering 
electricity at much cheaper rates than households and industry pay.

Existing users will subsidise cheaper power for beneficiaries of the 
scheme through higher tariffs, and will also be rationed to free up 
supply for new users.

The commitment to reallocate power is probably an attempt to reassure 
new investors that they will get electricity but it also seems to be a 
scramble to prevent Eskom from paying penalties to investors for breach 
of contract.

At the launch of the national energy efficiency campaign yesterday, 
Minerals and Energy Minister Buyelwa Sonjica confirmed that the state 
would continue with the developmental electricity pricing programme 
(DEPP), saying SA needed to attract investment.

“You still need these investments. You have to make sure the country is 
competitive, so (cheap) electricity has been used to make the country 
attractive for investment,” Sonjica said.

“Part of the plan of energy efficiency is to accommodate some of these 
new consumers.”

Sonjica estimated that households could save 5 669MW by using power more 
efficiently. The state seeks to achieve power savings from households 
and companies of 15%- 20%.

Penalties on households that breach savings targets would be introduced 
within a year, said the deputy director-general of electricity and 
nuclear energy, Nelisiwe Magubane. Larger corporate users of power face 
immediate penalties if their consumption exceeds a set target, 
determined by their average consumption over the 12 months beginning in 
June 2006.

Magubane said power saved through rationing would be passed on to the 
new investors under the DEPP.

The DEPP, developed jointly by Eskom and the departments of public 
enterprises and trade and industry, is an incentive to attract 
industrial investment to SA through low power tariffs.

The rates, which are confidential, are thought to be lower than current 
industrial rates. One of the most recent beneficiaries is Alcan (now 
Alcan Rio Tinto) for the aluminium smelter it will build at Coega. 
Aluminium smelting uses huge amounts of electricity. The Alcan smelter 
will consume 1 355MW at full capacity — almost 4% of SA’s supply.

SA’s electricity rates have long been the lowest in the world, and Alcan 
committed to the project primarily because of the promise of cheap 
power. But the situation will change drastically, with power prices set 
to double in the next five years to help fund Eskom’s mammoth programme 
to expand generating capacity.

Persisting with the DEPP means the government will promote SA abroad as 
an investment destination offering cheap power, even as SA’s power 
supplies become scarcer and dearer.

Economist Matthew Stern said the DEPP was an insult to consumers because 
they were expected to pay more for power and use less of it while the 
state refused to divulge pricing agreements with preferred consumers.

Trade and industry’s Nimrod Zalk said the department still needed 
clarity from the public enterprises department on the status of the 
DEPP. But he said that contractual commitments meant the programme could 
not be revisited “retrospectively”.

Eskom suggested last month that the Coega smelter might have to be put 
on hold because of the power reserve margin deficit. Eskom reached its 
price agreement with Alcan in late 2006.