Jacob Maroga

The shortage of electricity in South Africa has been cited as the main reason for scrapping a $3.25 billion aluminium smelter in the Coege industrial development zone (IDZ).

According to Rob Davies, minister of trade and industry, the energy system in the country did not make it viable to go ahead with the smelter for Rio Tinto. In a joint statement, the ministry, Rio Tinto, Eskom and the Industrial Development Corporation said “although some progress was made in discussions regarding the supply of electricity to the Coega aluminium smelter project, it was insufficient to proceed.This has led to the termination of the electricity supply agreement in accordance with its terms and conditions."

The scrapping of the Rio Tinto smelter is not the only negative outcome of the ongoing electricity problems in the country. BHP Billiton, which is operating its smelters with a 10% reduction in power, said it would only expand its southern African smelter when there was “stable, available long-term power at globally competitive prices."

There has been a suggestion that part of the decision to scrap the smelter project was due to Eskom’s intention to re-negotiate all long term power purchase agreements, most of which have been very favourable to big industrial users.

In August, Eskom said the discounting of electricity to aluminium producers was unsustainable.

Eskom have also proposed another fee increase of 45% for the next three years, which will be effective from April 2010 if approved by the National Energy Regulator of South Africa (NERSA)

According to Eskom CEO, Jacob Maroga, "providing power to South Africa is fundamental. Power is like oxygen to the economy."

He said the increases would reduce the utility’s funding shortfall for the four years to March 2013 from R80bn to R28.5bn out of a four-year budget of R413bn.

Over the six years to March 2015 the utility planned to spend R708bn in capital expenditure. Maroga said Eskom planned to spend R242bn on energy costs excluding road maintenance, non-Eskom generation, power imports and environmental levies.